about when everyone is telling you to invest in PPF.As previously mentioned in this blog, as of today we are in definite bear market with clearly identifiable lower highs and lower lows. Naturally, we need to short in markets. At the same time, the most important analysis in technical analysis is to identify trend reversals. Hence, the need to be alert to any possibility of reversal of the bear market.
While there are no clear signs of strength in the charts yet, I can see several indications of buying pressure at these levels. The Bull Run took Sensex from 3000 to 21000 in (as expected) three primary waves. Incidentally, the bear market has completed three waves too. However, it remains to be seen if these three waves are primary waves or merely secondary fluctuations with a single huge primary wave. Another positive clue comes from the Fibonacci analysis which suggests 50% retracement support at 7800 (We are sticking to logarithmic scale). Not surprisingly, Sensex saw huge buying pressure at those levels and formed a hammer on 21st October 2008. What’s even more encouraging is the fact the Sensex has shown some strength from that low. Markets have already formed two higher bottoms and higher tops from those levels. Intrestingly, the buying was with increased Voume.This suggests some possibility of consolidation at these levels. Given that the markets have already corrected between 1/3rd to 2/3rd of the gains of previous rally, there is a possibility that this consolidation to actually a phase of accumulation before new rally.
Hence, we must watch support in 7500-8000 region very carefully. If that support is breached then next support at 5000 comes into focus. However there is a possibility that this support may hold and a new bull run may take off from these levels. Unfortunately, it is unrealistic to expect a very quick recovery. But we do hope for a slow and gradual rally that would take Sensex beyond previous top at 21000. If we see, the entire rally as first primary wave then current fall becomes a secondary correction. In that scenario, we can expect Sensex to be near channel top in 60,000-70,000 range in next five years. Now, that’s assuming proportionate movement (Logarithmic scale) as Sensex multiplied 7 times from 3000 to 21000 in 5 years between 2003-2008. However, I am sure that even a linear scale will give projections that are very favourable to long term investors. This scenario becomes invalid if Sensex breaches lower trend line near 7200. However, a less steep trendline may still be valid and we can project it forward 5 years from new bottom to get expected levels.In a nutshell, I would say that although short term trend may be bearish, Indian equity markets still offer enormous opportunity to long term investor with a 5 to 10 years time horizon. We need to watch out for signs of recovery and quickly jump into the moving train when it leaves the station!
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