LONG TERM SCENARIO:

Whenever we talk about the long term, we mean the next one-year. If we expand this picture and look at the next twenty years, we get some mind-boggling results. Till now, we started our discussion about the long term from the top of 4643 (12-09-94). This top of 4643 was the end of the first cycle wave in a multi year cycle. We are currently in the second cycle wave. The rough time targets when this second wave can end are September 2001, August 2002 or April 2004.

That is it can take one to four years. Once this second cycle wave ends, we will have an incredibly bullish phase where the sensex can rise above 60000. No, I have not added an extra zero by mistake. This would be the third cycle wave and as we know third waves are awesome. So the looong term (next twenty-five years) in the sensex is very bullish.

As far as the ongoing correction is concerned, this is the second three wave pattern in a double three that started from the peak of 6151 (14-02-00). The rise from 2741.70 to 6151 was an X wave. Since the X wave was a very strong one, the next three-wave correction is not expected to fall to the starting point of the X, i.e. 2741. In fact we expected the fall from 6151 to stop around the 4800 level.

But as we mentioned before, the formation and the bursting of the infotech bubble coupled with the NASDAQ influence is a new phenomena in the stock market and it is causing more than expected bearishness. This factor is also making the prediction of the intermediate term bottom difficult. A ball park range for the sensex to move within, for the rest of this long-term correction (1 to 4 years) will be between 3000 – 6000.

THE NEXT TWO WEEKS

The sensex seems to have formed a short-term bottom at 3912 (15-05-00). This upward movement can consolidate next week. If we assume that the sensex does not fall below 4050 on 19^th May, 00, then the upward targets will be 4331, 4505 and then 4786. A breakout above 4360 with good volumes and a close above this mark will be the primary requisite for the rally to sustain. In case the sensex manages to close above 4800 mark, then it will face the next hurdle at 5150.

If the next week begins on a positive note and the sensex manages to close above 4360, then the sensex can rise to the targets mentioned above and then react from there to 4000 – 4200 level again.

The second scenario is that the sensex opens on a weak note on 22-05-00. In this case, the sensex can hit the bottom at 3902 or else at 3844. A rebound from these levels will once more spark off a short-term rally. Breaching of the 3844 level can take the sensex down to the 3499. Beyond 3499, 3183 and 3073 become possible.

To put it simply, all long positions should be stopped out if the sensex starts plunging beyond 3844. In this case, we merely have to follow the trend and see where the sensex bottoms out.

We have good long-term support in the 3800 – 4000 zone. But some of the indicators in the monthly chart show that the sensex has got plenty of room to move downwards. The crossing of the 50-day EMA and the 200 day EMA too denote that all rallies will be terminated abruptly for a few more weeks.

In short, the sensex can continue to move in the 3800 – 4800 range in this next two weeks. Close below 3850 will put the bears in charge. Since we are in a downtrend, profit on long positions should be booked fast. Selling on rallies will be easier in this phase rather that buying in the dips. This scene will change only if we have two consecutive closes above 4800.

TODAY’S TRADING DAY

The subdued trend is expected to continue on Friday as well. The opening can be on a weak note. The downward supports from where the sensex can recover are 4142, 4112 and then 4077. If the fall stops above 4000, that will leave the room open for a rally next week.

Fall below 4077 can take the sensex to 4007 and then 3893.

A minor rally in the morning will have the target of 4216, 4238, 4284 and then 4367. Stops for short positions for the day can be at 4300.

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