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SENSEX MOVES - Correction - The End !!!
SENSEX
(current market price - 16153)
PRICE
Sensex has closed at 16153 retracing 25% of the total down swing formed from the high of 21206 (made on 10/01/2008) to the low of 14677 (made on 18/03/2008).
RETRACEMENT
(a) The sensex has retraced 25% of the total down swing formed from January, 2008 to March, 2008;
(b) It has retraced 38% of the intermediate down swing formed from February, 2008 to March, 2008. Considering the intermediate nature of the current up swing, sensex can further retrace up to 16800 (50%) and 17300 (61%) of the intermediate down swing. Crossing of 17300 conclusively will qualify sensex to retrace 50% and 61% levels of the total down swing which are 18000 and 18700 respectively.
VOLUMES
Average volumes have been seen in past few weeks indicating lack of participation by the retail investors.
BOLLINGER BANDS
The recent low of 14677 formed on 18/03/2008 was inside the Bollinger Band as compared to the low of 15332 formed on 22/01/2008 which was outside the Bollinger Band. Formation of a lower low inside the Bollinger Band is a sign of bottoming out of sensex.
MOMENTUM
Momentum indicators have come out of their bearish zones and have turned neutral: a) RSI – RSI is at a neutral level at 50.
RSI Divergence – Sensex has made a lower bottom since January, 2008, whereas the RSI has made a higher bottom compared to the same period, thus resulting in the formation of positive divergence (shown as no. 1 and 2 in the chart). This shows that the falling prices lacked momentum.
b) ADX/DMI – DMIs have been converging and ADX has turned down indicating that the downtrend has lost strength.
PITCHFORK
The price has retraced after taking support at the median line of the downward sloping Pitchfork and has crossed the upper channel.
SENTIMENT
Bearish with lack of confidence amongst investors.
HISTORY
a) Trend Cycle - A Trend Cycle comprises of four years of bull market followed by one year of bear market. The recent bull market started in the year 2003. As per the cycle, we have completed four years of bull phase. We are thus in anticipation of one year of bear/sideways market.
b) Market Bottom – Since the start of the Bull Run in 2003, our market has witnessed three major corrections:
PeriodHighLow%
May 20046248422732%
May 200612671880031%
January 2008212061467731%

The above figures are a clear indication of the history repeating itself. They are also a witness of the primary uptrend being intact. c) Pessimism – The recent crash in the market (coupled with the failure of a major IPO such as R.POWER) has led to too much pessimism amongst the retail participants. Newspapers and news channels have started to come out with bearish forecasts of the sensex being at 12000 and even at 8000 levels too. History shows that such pessimism is a sign of market bottoming out.
TIME ANALYSIS
Since the market has corrected itself price -wise but not time-wise (due to the sharp and swift correction), we anticipate a side-ways market for the next 6 to 8 months.
OUTLOOK
a) Market to remain in the broad range of 15000 to 19000 for the next 6 to 8 months
b) Retest of the bottom is likely
c) Sector rotation to be seen where defensive sectors such as FMCG, Pharma and IT are likely to perform.
d) Blue chips should be focused upon as they shall witness value buying.
STRATEGY
One should: a) do extensive homework before selecting a stock;
b) Not expect huge returns from stocks considering the range-bound market.
c) replace the ‘investor cap’ with the ‘trader cap’ and trade both sides of the market to optimize returns.
NOTE
I thank all of you for all the calls and emails appreciating my article on nifty view (on 21-01-08) just before the market fall. It gives me lot of motivation to keep doing the good work. Hope I keep up to your expectations in future to provide you good market insight.
Regards
Vishal B Malkan
CONTRIBUTED BY
This article is contributed by VISHAL.B.MALKAN.Currently engaged as consultant to HNIs for the equity market. He is a Management graduate(Finance) from Narsee Monjee Institute of Management Studies (NMIMS).He has mastered his concepts of Technical Analysis under the guidance of Dr. C. K. Narayan.He has 10 years of experience in equity markets and is always eager to share his views with others.
Mobile : +919821618517
Contact : vishalmalkan@rediffmail.com
DISCLAIMER
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