Just to give an idea to investors about what is going on with the Sensex..

I have the data for Sensex from 1979 onwards...

This is how the chart looks from 1979 till today..



Sensex was at 120 levels in 1979 April.

Today it closed at 17660.

Rs 1000 invested in the Sensex in 1979 would be equal to Rs 1.47 lac today.

This almost equals annualized returns of 20%.....without considering dividends.

The Sensex did not move much between the early 90's and 00's.

Thereafter it again resumed its upward trend.

This is the chart of this bull run (2003 January - 2008 January):



Note how the index has remained above its green trend line for 5 years.

The Sensex went below its 200 day EMA two times in these 5 years and got support at the green trendline.

This is the third time that the Sensex has found support at the trendline.

200 day EMA is the red ribbon in the charts.

Anyone who was tracking the technicals, would have bought at the bottom in this fall.

Note how close yesterday's low (22 January 2008) was to the trendline.



If this trendline breaks in the next few weeks, we could see a very sharp fall.

Breaking of this 5-year trendline, can send the markets into a bear phase lasting few months to few quarters.

The trendline is at 15500 currently. Thus 15500-16000 is a crucial support zone for the markets..

On the upside, resistance exists at

18270 - 50% retracement of the fall.
18930-19000 range - 61.8% retracement of the fall.



There is a gap between 18920 and 18931 in the Sensex chart. This gap may close in this rally.

However, 19000 will be very tough resistance to cross.

I suggest all speculative long positions should be closed if the Sensex goes above 18900.

This level is still very far. I am not suggesting 18900 is the target of Sensex, I am only saying if the Sensex goes to that level, it will face very tough resistance.

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Sensex touched 18895 and reversed - missing 18900 by 5 points.

The reversal came in form on an island reversal....with two gaps.....this is a bearish sign.

Sensex has a very critical support at 16690-16720 range.

If this support is broken, we can see another sell-off.

(The lowest close we have had in last few months is 16729 and 61.8% retracement of the rally from 15332 to 18895 is 16693.)

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Sensex is trading at 16548, down 916 points.
It has broken all support levels that you have mentioned. Are we treading on uncharted territory ?

As the index is oversold right now, I would wait till the close before reaching any conclusions.

If bulls can make the index close above 16700, then we may still have some hope.

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Sensex closed at 16630, well below 16700. Now what's in store for the future? Getting too nervous to trade now!

We have broken down from a perfect "rising flag pattern".

Technical patterns cannot be more perfect than this....

Add to that:

-we closed at lowest closing price in nearly 5 months.
-200 day EMA and DMA have been violated.

From the charts, it seems we will test the January lows again.

(I hope I am wrong....)

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Alchemist, I really appreciate your analysis. According to you, we will test the Jan lows again.

Some important point to note before making any predictions:

1. The US recession and the overall global economy weakness.
2. The upcoming Indian budget and overall soundness of the Indian economy.

Now, Do you see it going down towards the 15500 mark and holding and finally a strong pull back from there?

Or do you see it going down further (maybe 14000 levels) from there on?

Thanks and looking forward to your answers before tomorrow's opening bell.

Fundamentally, I do not see many reasons to worry.... at least not yet.

At 16600, we are 16.6 times FY 2009 Sensex's expected eps of Rs 1000. I would call this fairly valued...neither cheap nor expensive.

(Just as we got overvalued in a bullish market, if it is really a bear market, we can get undervalued too.)

Charts are telling a different story.....more bearish than the fundamentals.

As of now, Sensex at 15000 looks possible to me. I would not like to comment on any level beyond that.

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My equity portfolio is currently into 16% Loss, if 15000 seems to be a real concern, will it be right to book losses and wait in cash ?

Are there any chances of a reversal or are we steadily headed to a bear-phase ?

Kindly share ur opinion, it will be really helpful.

Between technicals and fundamentals, I go with fundamentals.

I am usually an investor and would not sell my stocks because the markets may go down.

If you have stocks that you believe in, I would not recommend selling them.

The bear phase may last from a few weeks to a few months. It is difficult to predict right now.

Prices had run far ahead of valuations, so prices must wait for some time, before valuations rise and meet them.

We have already corrected from 21200 levels to 16600. Most of the price correction may have already taken place.

Now time correction may follow.....i.e. a "consolidation phase".

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Same is the case with me

I guess it will be better to wait till it goes below 15000. Any more views on this.

Ironic part is, I read about Rising Flag pattern only yesterday

I personally feel that the sensex doesnt have much to go down even if the market is bearish. It can hit/cross 15,000/- levels and may even hit 14,000/- But one thing I am counting on is the 'greed' factor May be in a few weeks or months people will forget this phase and come back to invest. You just cant keep an investor/trader away for long.No matter what anyone says or believes people would want to make money in stock market and that will revive the market.

There are also a few NFOs (close ended)coming up and Fund Managers are eager to invest all that corpus and get good returns over a period of a 2-3 years. Most of them feel this is a good time time buy as almost all stocks have reached close to their 'fair' price levels.

Lets hope this will also make retail investors invest more in MFs than stocks directly and reduce FII investment to some extent. That would be better for our aconomy. FM should make funds like ELSS and Close ended MFs more attractive. I personally made far more money in MFs/ELSS/ULIPs than in stocks. And I sincerely suggest all those who are not market savvy to just invest in these funds and increase your wealth. As the fund managers are far more likely to be more knowledgeble than most (if not all) of us here. And in India you can easily expect 15-20% annualised growth from good/decent MFs.

Why should we let foreigners make money from our growth?

This thread is for discussing Sensex - especially the technical aspects.

Please stick to the topic.

================================================

The last time 16690-16720 was violated, the market bounced back a little.

The support had been violated by an oversold Sensex and thus the bounce back was not very surprising.

(See above posts).

After that, the Sensex has made a consolidation (or distribution) pattern in the form of a triangle.

(Join the two recent tops in the Sensex chart and you will see the triangle. I have used a different trendline.)

The Dow Jones Industrial Average is also showing a similar pattern.

The markets have got squeezed in a zone of indecisiveness. They don't know which way to go.

Such patterns are usually followed by violent breakouts.

This breakout may come in any direction and will be followed by big moves.

We may see an increase in volatility soon.

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Great analysis, actually I also saw same in NIFTY, but was not very confident about same. Now that I have second opinion as mentioned above, I guess my eye for charts is improving. As well as I think indecision matches will budget expectations next week.

Also: can you please put names between charts, above one is from Dow jones and below is sensex. On first look I was like sensex 12000..confused

Good Evening Alchemist,

Can one consider the last phase of your chart as Inverted Head and Shoulders with shoulders around 31st Jan and 22nd February and head on 11th Feb, though time frame between both the shoulders is very short?

Regards

Reji

N.B I don't know how to attach image as there is no icon.

Don't try to force pattern on charts.

Usually when people start learn about patterns, they see patterns when none exist. Even I used to do that.

It cannot be considered head and shoulder pattern as usually H&S pattern has to come at the end of a distinct rally or sell-off.

"Head" comes at the "end of the body".

The low of 22 January is much lower than the head that you are seeing.

Also the size is odd. The pattern is as big as the preceding downward correction.

"Head" cannot be as big as "the body".

================================================== ==============

The pattern that I am seeing, is not much different from what your are suggesting.

Your "neckline" is my "upper trendline".

The break of your "neckline" or my "upper trendline" will have the same consequences - a strong rally.

Head and Shoulder is considered a reversal pattern and thus I would not like to give this name to a mid-trend pattern.

This chart will make everything clear....

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This is as tight as it can be.....

Prices are really getting squeezed in a range. We may see a violent move soon.

Which way?

I don't know....

Yellow ribbon - 50 EMA.
Red ribbon - 200 EMA.

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Yes you are right very clear explanation. We don't know the direction yet but this is the moment or uneasy calm before the STORM.

I guess the big move or the direction it takes now will set the tone of market for months and months ahead!....

I am still scared in anticipation for week ahead!

The Verdict for Straddle is also due ....:-)

Today's Sensex close is lower than January 22nd's close of 16730.

========================================

As things stand now,

Sensex is below 200 EMA ==> Theoretically, it is a bear market.

Sensex has not made a lower bottom yet (January 22nd's low was 15532) ==> Theoretically, it is a bull market

Sensex is still above its long term trendline ==> Theoretically, it is a bull market.

========================================

See the second chart in first post. The light green line is the long term trendline for the Sensex. The line is at 16200, but is rising. If Sensex goes below this line, it will be a bearish sign.

The line may be touched in next few sessions...may be tomorrow.

Keep a watch for this level.

On the upside, the 200 EMA is at 17250 and this may act as a resistance.

If US markets remain bearish, we may retest January lows.

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This is a triangle breakout, thus what is the traingle breakout Target?

I think it comes around 14500?

As the prices have "run out" of the triangle, I would not give much weight to the consequent target.

Also, the target will vary depending on where you assume the triangle starts.

Right now, the important question is whether the Sensex will hold the current levels or not.

We are sitting on a trendline that has not been broken in nearly 5 years.

If the Sensex goes below it, the implications can be very bearish.

Notice how the Sensex found support on the trendline today.

Markets are oversold and may bounce back in absence of negative cues from the US.

As mentioned earlier, the 200 EMA will be crucial resistance to watch on the upside.

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The SENSEX has bounced back again from the trend-line... ..but I am still wary of going long any of the stocks[though I bought a few stocks of IDBI and Alembic today [couldnt resist the temptation ]..hope it continues to rally for atleast the rest of the week...

Alchem,
What would be your predictions if this trend line is broken and full-fledge bear market kicks in??
is there any level where we can say the markets will find support..
Also, how should one approach trading in a bear market? should the focus be more on individual stock prices than looking at the indecies...

The 5-year trendline has been broken.

This is a bearish sign.

The markets are oversold in the short-term, but as downward momentum is very strong, traders should stay away.

Below the trendline, major supports are the Fibonacci retracement levels of 38.2%, 50% and 61.8%.

These are:

38.2% - 14215.
50.0% - 12055.
61.8% - 9900.

This is the weekly chart of the BSE Sensex:

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hi alchemist
since we have closen below the 5 year trend line....could it be taken as concrete sign of further downtrend

Yes. This is a big sign of further downward movement. Usually when such long-term trend lines are broken, the market reverse their direction. This is what has happened now... and we are into bear phase....

As Alchem has explained, the markets find support at the different levels and if those levels prove strong enough, the markets will bounce and then start to move up again...I expect [rather hope]this happens sooner than later as we see that the valuations are good right now and even further fall down would mean that investors will get even better deal on most of the stocks and demand should go up pushing the markets up....

No.

One thing is confirmed - technically the bull market has been brought to a halt.

Now there are two possibilities.

-correction with sizable downside.
or
-sideways consolidation.

In either of the above two cases, I think it is best not to buy anything now.

According to Elliot Wave Theory, sideways corrections retrace 38.2% of the earlier wave and sharp corrections retrace 50%-61.8% of the earlier wave.

14215 looks possible now.

(See post #23).

=======================================

On the upside, if the Sensex can go above the 200 EMA, 50 EMA and downward-sloping trendline, the up-trend will again resume.

(See post #16 for the trendline).

=======================================

I will wait for either 14215 to come or the downward trendline to be crossed again.

No buying stocks till one of these is achieved.

=======================================

Note: Nifty is still above its 5-year trendline.

Those who go by the Nifty, may still be bullish.

I find the Sensex a better indicator of the market and prefer to use it.

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Now we have come to an interesting stage.

The Sensex has made a double-bottom and is trying to move-up from an oversold zone.

On top lies a very dense resistance zone..... the zone will get squeezed between the green arrows. See the chart below.

The yellow ribbon is 50 EMA and red ribbon is 200 EMA.

Tomorrow when the market opens, it will be again above the long-term trend line.

This is just the start from an acid test for the index.

At 17200, we have the 200 EMA.
At 17500, we have the downward sloping trendline.....not shown in chart.
At 17850, we have the 50 EMA.

The above values will change with time, but you have the approximate idea.

Besides these resistances, the market will see selling at Fibonacci retracement levels of 38.2%, 50% and 61.8%.

These are:

38.2% - 16712.
50% - 17129.
61.8% - 17546. (Important level).

=======================================

At each of these levels, we will see very strong selling as well as shorting.

If the bulls can manage to pass this acid test, we may see a strong rally again.....may be even touch old highs.

I expect the volumes to go up in next few sessions as the bulls and bears battle out....I will wait and watch.....

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The markets stumbled at the first hurdle itself.

Even the first resistance of 16712 was not crossed and the day's high was 16683.

There was a lot of shedding of open interest.

Shorts were covering, but there was selling by the longs too and thus prices were not able to move up.

This was in spite of 400+ rally in the Dow Jones Industrial Average.

Today, we will open down again.

Things don't look good.

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We closed at the 6 mth lows today. What next?

I think this is now a confirmed bear market. At least in the short to medium term.

What should be the next target? Alchemist's 14215 looks quite imminent now. When should one open for the buys now?

The sensex is making lower lows and lower highs...seems it getting into a bearish trend!!



The RSI struggling to break out above 30 levels!!

The markets are near support-levels and a short-term bounce back can be expected in next few days.

(Many of other world markets are also near support levels).

Today's Fed meet will decide which way we will go.

However, as the markets are over-sold and at support levels, I do not expect much downside in the short-term.

The Nifty is just above its long-term trendline and this will act as a very good support.

(The Sensex has already broken its long-term trendline).

Nifty's trendline support is around 4440 today. It moves up everyday.

Sensex has a strong support as 14215.

These are NIFTY charts:

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The fall has been halted by the trendline in Nifty, but the bounce-back is not convincing.

The marker seems to be resting and trying to decide which way to go.

Any bad news can take us to 14215 on the Sensex.

This is the Nifty chart:

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There is no reversal signal as of now from technical school of thought

If I summarize
- The price is continously touching lower band in Bollinger bands, which means downside implications are there.
- Bands are very wide which means huge volatility and big moves will be seen in coming days.
- Broad trend is negative as price is still below 34 day EMA.
- Since 2004 on weekly charts first time MACD is heading below 0 with widest Gap in histogram.
- Price is placed at long term trend line, a single bad news can signal trend change.
- Nifty next support is 38.2 % target 4243.

All buying decisions should be placed for bottom fishing.

Alchemist,

Pretty solid bounce back today, 900 + points ( 2nd Highest ever , over 6% ) would like to know

1) what was / were the reasons for this gain today ?, people not going out over the easter weekend, saving up to buy scrips today , surely not !

2) Will we hit the 17000 mark soon ?, will the market stablise over say 16000-17000 ??

I am still reluctant to buy any scrips to be honest, who knows, if it tumbles and knocks off another 800-1000 points

See post #31 (18th March 2008).

Most of the world markets had reached important support levels.

Remember one thing.

Whenever, an oversold market meets a strong support or an overbought market meets a strong resistance, there is a good chance that the trend will be halted for some time.

The Sensex was not near any support, but Nifty had reached its 5 year trendline.

Many shorts, who use the Nifty for trading, would have covered at this level.

Also, many bullish traders must have opened fresh positions at the trendline.

The important question is whether this is a trend reversal or just a relief rally.

I think unless the Sensex can cross 17200, I would prefer to call this a medium-term bear market.

In the chart below, you will notice that the Sensex has a lot of resistance in 17000-17200 range.

-the two green trendlines.
- 50 day EMA (green ribbon)....at 17190 currently.
- 200 day EMA (red ribbon).....at 17060 currently.

It will not be easy for the Sensex to cross this range.

Also, the volumes were weak yesterday....that makes me doubtful of this rally.

======================================

One day moves don't change much.

On 25th January, Sensex had a 1140 point rally....yellow line in the chart.

However, it did not materialize into anything.

Unless, the Sensex crosses 17200, investors should be careful.

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Over all view is very negative,

-Nifty didn't cross it's 34 day EMA (4975) resistance, leave apart 50 Day EMA = 5091 and 200 day EMA = 5048.

I should have posted this yesterday, but forgot....

15350 is crucial support for Sensex. It has bounced back from this level few minutes back.

It is the 61.8% retracement for the rally from 14677 to 16452.

15350 may hold for some time. A break below this will mean previous March lows will be tested again.

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I have been reading last week analysis from ICICI, a very nice and detail one, where they talk about 2 Theories on the cyclical downturns of Sensex.

Proposed Theory 1

By analyzing yearly chart since 2002, market has always formed a peak in JAN and them forms a bottom by MAY.

So estimate is Market will bottom out in May and going forward will make new highs.

Icici so called experts are pitching on this one.

Proposed Theory 2
They propose if we analyse as per time cycle of sensex since 1974, we see that every 8 years there has been significant change in trend. This implies for next 8 years we see despair in markets.

Let me know what are your views and of other experts here.

Note: This presentation is available to all ICICI trading Demat account holders. If you have not read it yet, please read and verify.

That's a very interesting analysis.

Here is the link to the article.

To me, it doesn't look like an annual correction that ends in May.

If it is the 8-year cyclical correction, it may last much longer.

The 1986 correction lasted for around 2 years.
The 1992 correction lasted for around 1 year.
The 2000 correction lasted for around 1.5 years.

I did a slightly different type of cycle analysis for the Sensex and came with a figure for 3-12 months.

So I guess a bottom in end-2008 or early-2009 may be possible.

A 55% cut from top of 21206 will be somewhere around 9542.

In post #23, I have mentioned the 61.8% retracement, which is around 9900.

Even fundamentally 9500 would be the bottom valuation for the Sensex.

For now, one can assume 9900 to be the absolute bottom for market.

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One thing to note is none of the so called market champions and commentators are not advising poeple to stay away from market now that it has become trading market.

People should actually wait for trend to become clear. Up or down and then align your decisions!