WHAT IS DIFFERENT FROM 2008 THIS TIME AROUND?
1) Technically, there is a vast difference between chart set up that existed in January 2008 and that exists right now. As can be seen in the chart below, in January 2008, it was just the continuation of the overall uptrend that had started in 2003 and Sensex had already risen a whopping 600% from the bottom of 2900 made in April 2003. And therefore, it was in a highly overbought position as also indicated by Relative Strength Index in the chart below. Currently Sensex is up roughly 160% up from the bottom of 7700 made in October 2008. Also RSI on monthly chart is still away from the overbought territory.
To understand this, let us first look at what has happened over past 15 years. Below is the quarterly chart of Nifty since its inception (1994). As can be clearly seen, there was a very sharp run up from 2003 to 2008, which was followed by a sharp correction in 2008. Now at that time we thought that it was a bear market. But in fact it was a bear phase of the overall structural bull market. The rise was so steep, that the fall had to be equally steep. And guess what? That fall got stalled exactly at the trendline adjoining tops of 2000 and 2004 as can be clearly seen from the chart below. Markets reversed from this trend line support and gained a hefty 76% in 2009.
Now, have a look at the weekly chart of Nifty below. As shown in the chart, Nifty was trading in a channel from October 2009. The channel was a rising one, with subsequent higher tops and higher bottoms. The width of this channel was approx 650 point. Markets finally broke out of this long channel in this month (September 2010). The breakout level was around 5740 as shown in the chart below. Now, considering the fact that this was approximately 650 point channel, the approximate target comes to 5740+650=6390. This roughly coincides with the all time high of 6357 touched in January 2008. On the downside, 5740, the earlier breakout level, should serve as a good support.
LONG TERM OUTLOOK
As explained and shown in the quarterly chart above, I feel that we are very much in a structural bull market. The crossover and sustenance above 6357, the high made in Jan 2008 should eventually lead to substantially higher levels. If I have to make a guess, I will not be surprised to see Nifty/Sensex at around 10500/34000 in next 3 years.