The current Bull Run has left even born skeptics like me wondering if expectation of a correction was result of faulty analysis. However, there still seems to be at least some rationale for remaining cautious rather than jumping on to buy stocks at these levels.
Though I normally stick to the simplest charts for analysis, today I happened to have a look at logarithmic charts of Sensex and Nifty. Surprisingly, all of seemingly unexplainable moves of the markets look very natural once we switch the scale from simple to logarithmic (A logarithmic scale plots percentages changes instead of absolute changes. For example, a movement from 200 to 210 will show a 10 unit increase in simple scale but only a 5 (10 is 5% of 200) unit change in logarithmic scale).
Looking at this chart, Sensex has hit the upper trend line of the rising channel. Even the Fibonacci analysis shows that the previous top of 19990 is 261.8% extension of rise from May 2003 to Jan 2004. Going by this analysis, Sensex has a strong resistance at 20000. The correction that begins from these levels should take it back to around 16000 in about a month. Nifty should fall to around 4300.
Sensex
The analysis is based on long term chart from 2003 to date. So the expected movement will take some time and patience is required to benefit from the fall. A closing above 20300 invalidates this analysis and a close above 20600 (3% above 20000) should be taken as a breakout, resulting in further gains before a correction sets in. However as long as Sensex closes below 19990, I would expect a correction.
Note: Charts created using data available on NSE and Yahoo Finance website with help of AOI Trade (http://www.aiotrade.com/). This write up is only for educational purpose and not intended to be professional advice.
Though I normally stick to the simplest charts for analysis, today I happened to have a look at logarithmic charts of Sensex and Nifty. Surprisingly, all of seemingly unexplainable moves of the markets look very natural once we switch the scale from simple to logarithmic (A logarithmic scale plots percentages changes instead of absolute changes. For example, a movement from 200 to 210 will show a 10 unit increase in simple scale but only a 5 (10 is 5% of 200) unit change in logarithmic scale).
Looking at this chart, Sensex has hit the upper trend line of the rising channel. Even the Fibonacci analysis shows that the previous top of 19990 is 261.8% extension of rise from May 2003 to Jan 2004. Going by this analysis, Sensex has a strong resistance at 20000. The correction that begins from these levels should take it back to around 16000 in about a month. Nifty should fall to around 4300.Sensex
The analysis is based on long term chart from 2003 to date. So the expected movement will take some time and patience is required to benefit from the fall. A closing above 20300 invalidates this analysis and a close above 20600 (3% above 20000) should be taken as a breakout, resulting in further gains before a correction sets in. However as long as Sensex closes below 19990, I would expect a correction.
Note: Charts created using data available on NSE and Yahoo Finance website with help of AOI Trade (http://www.aiotrade.com/). This write up is only for educational purpose and not intended to be professional advice.
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