Anyone who trades in the Indian Stock market would have heard of Mr Rakesh Jhunjhunwala and how he made his vast fortune. But Economic Times has run a story this morning about how he has lost $200 million in about 2 weeks. And a few minutes back, I read the news that he has upped his stake in Delta Corp, a company which has lost 40% of its value following the demonetization of large value Indian currency notes. His average price of purchase today was at 106.54. Now readers of WaveTimes are smart people! You already know that if one has conviction in a business, then any sell-off should be used as a great opportunity to buy some more of that business. That is precisely what Mr Jhunjhunwala is doing. But what is interesting to readers of WaveTimes is not just the news, but the levels he has chosen to buy.
Let us take a look at the charts of Delta Corp. You will see that he has chosen to buy near the 61.8% retracement. Naturally, when you place a big trade, you can’t get it all at the lowest price. So you pitch it slightly above that level. Hence his average is slightly higher. But the price has closed at 114 plus levels. Also, it is important to bear in mind the tactics of big traders. They often buy at the end of a third wave, not wanting to wait for the end of the fifth wave. Trades done at the end of wave 5 will produce a longer reaction, and all they need to do is to help that turn by nudging the market a bit there. The real buying would have happened at the end of the third wave.
Be sure to read the small note at the end of these charts. (Tip: You should open all the charts immediately in separate tabs, or you will have to keep going back-and-forth)
Now that you have admired the charts and wondered about the tactics of Mr Jhunjhunwala, you might have paused to think about my wave count. If I label this as a 5-wave down move, won’t we get another 5 wave move down after a pull back? After all, corrections should be 3-wave affairs. That would be a great question, and if you ask that in the comment, I will answer it there!