MY THOUGHTS ON MARKET

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.

2)      Second Question comes: What Now?

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.

WEEKLY TECHNICAL 18TH SEPTEMBER 2010

A BLOW OUT RALLY

It was a blow out rally for Indian markets as benchmark indices surged more than 4% in the week gone by to close at the highest level after 11^th January 2008 on weekly basis. The special thing about this week’s trading was the successful crossover of the resistance of the rising trend line adjoining tops of October 2009 and January 2010 as shown in the weekly and monthly chart below. Almost for past one year, Nifty was trading in the rising channel as shown in the weekly and monthly chart below. There was a tough resistance of the upper line of this rising channel around 5740 this time around. Nifty crossed this key resistance by closing at 5760 on the very first day of the week. On the subsequent sessions of the week, benchmark extended the gains by touching a high of 5901.65 on Thursday and finally settled at 5885, gaining 245 points or 4.34% on weekly basis. This was the highest weekly gain for Nifty after the week ended 28^th August 2009.

The technical outlook on market continues to be positive. While the possibility of running correction is not ruled out in the near term considering the fact that Nifty has run up nearly 10% in last 13 sessions, the fact that the benchmark has decisively crossed a big resistance as mentioned above, portrays a very bullish picture for the medium term. 5740, the erstwhile resistance, will now act as a meaningful support on the downside. On the upside, extension tool gives an immediate target of 5994. Traders are advised to ride their trading long positions with the stop loss of 5815, which is Thursday’s low, the day on which markets saw sharp intraday profit booking and closed in red for the first time after 7 consecutive up days.