In our January 2006 long term report on the Sensex, we projected a target of 12000 by July 2006 and 17500 by August 2008. Our target of 12000 was met in May 2006. In our May 2006 report, we advanced the time-target for our next major target of 17657 to December 2007. This target too was met in October 2007.
In early January 2008 we expected the Sensex to test the resistance area between 21000 & 21500 and that it could then enter a corrective process. The Sensex has since then made a high of 21206 this month and has also corrected sharply to make a low of 15332. At the low of 15332, the Sensex has even tested the trendline connecting the panic lows of 4227 (May 2004) & 8799 (June 2006).
Despite the sharp correction, the Sensex is currently trading above the trendline connecting the lows of 2934 (May 2003) & 4227 (May 2004) which is the backbone of the ongoing bull run since May 2003. The Sensex has also managed to recover above the trendline connecting the highs of 12671 (May 2006) & 14325 (January 2007). A recovery above these key trendline supports, despite a violent correction, suggests that the robust bullishness in the Sensex is yet intact.
During the January – May 2004 corrective phase, the Sensex had corrected by 32% from the January 2004 peak. It corrected by 31% from its May 2006 peak during the May – June 2006 corrective phase. In the recent fall, the Sensex has corrected by 28% from the peak of 21206. Hence the Sensex has corrected significantly enough for the risk-reward equation to once again turn favourable for long-term investors.
Therefore, the Sensex is likely to have made a significant bottom at this month’s low of 15332 and is now poised to resume its long term up
The May 2006 peak of 12671 was formed near the 423.6% Fibonacci level of the January – May 2004 corrective phase. The January 2008 peak of 21206 was formed after moving past the 261.8% Fibonacci level of the May – June 2006 corrective phase.
If this sequence is to follow, the next significant resistance for the Sensex is placed between 24837 & 25201. The 161.8% Fibonacci level of the fall from 21206 to 15332 is placed at 24837 while the 423.6% Fibonacci Level of the May-June 2006 corrective phase is placed at 25201 .
Hence, one must exercise caution when the Sensex nears the 25000 zone since it could be a potential resistance area. The subsequent Retracement would be determined by the manner in which the Sensex approaches the aforesaid resistance zone.
Each Intermediate Sensex peak since 2004 has coincided with the key Fibonacci levels of the April 1992 – April 1993 corrective phase. Since October 2007, the Sensex has repeatedly tested the 685.4% Fibonacci level of the aforesaid corrective phase, placed at 19570.
Once the 685.4% Fibonacci level is decisively conquered, the Sensex is expected to target the next key Fibonacci level placed at 30442 .
Thus, the major long term target for the Sensex is 30442.
When Could The Sensex Test 30000 Levels The trendline connecting the highs of 6249 (January 2004) & 12671 (May 2006) is acting as a key hurdle for the Sensex. However, the Sensex can continue to make higher highs even if it does not negotiate past the same since the trendline is an up-sloping one. The said trendline intersects the 1109% Fibonacci level of the April 1992 – April 1993 corrective phase in April 2009 .
The next turn of the 19-Month Time Cycle that the Sensex has been following since the February 2000 peak is in August 2009 .
Thus, the Sensex could test our Major Target of 30442 as early as April 2009 & August 2009, assuming the Sensex continues to sustain above its critical trendlines and the 19 month time-cycle continues to hold relevance.
However, Price Targets are reliable and are expected to be met whereas Time Targets may vary.
Critical Supports For The Bullish Outlook To Remain Valid For immediate bullishness, the Sensex needs to sustain above the trendline connecting the highs of 12671 & 14723 on a Monthly Closing Value basis. The said trendline is placed at 17459 for February 2008 on the Arithmetic scale chart.
The up-sloping trendline connecting the lows of 2934 & 4227 is placed at 16615 for February 2008 and at 17128 for March 2008. The said trendline is acting as the backbone of the entire bull run since May 2003.
The up-sloping trendline connecting the lows of 4227 & 8799 assumes importance as a critical support since the recent correction took support on this very trendline. The said trendline is placed at 15817 & 16287 for the months of February 2008 & March 2008 respectively.
Thus, major supports for the Sensex are placed between 16615 & 15817 for February 2008 and between 17128 & 16287 for March 2008. It would, therefore, require a violation of these critical supports and a decisive breach of the recent low of 15332 to endanger our Primary Bullish outlook. Importantly, the Monthly MACD has never breached its trigger line since the onset of this 5 year Bull Run. Only a Monthly Close well below the panic low of 15332 would lead to the Monthly MACD crossing below its trigger line. This would then have major long-term implications for the Sensex.
In Summary Our bullish outlook on the long-term uptrend in the Sensex remains intact so long as the Sensex sustains above its critical supports and the Monthly MACD remains above its trigger line.
Critical Trendline Supports are placed between 16615 & 15817 for February 2008.
The Sensex is expected to initially test the 25000 zone. Based on past Sensex behaviour, this target could be attained even as early as September 2008.
The major Long Term Target for the Sensex is 30442. If the Sensex holds above its critical long-term trendlines and the 19 month Time-cycle continues to hold relevance, then this target may be met between April 2009 and August 2009.
Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.