A Road Map To SENSEX 100,000

June 15, 2009

By Mark Galasiewski

This article was originally published as a special Interim Report of EWI's Asian-Pacific
Financial Forecast on March 23, 2009. Since then the SENSEX has risen as much as
65%. For a limited time, Elliott Wave International is offering a full 10-page issue of the
Asian Pacific Financial Forecast, Discover The Bull Markets You’re Missing, free.

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Prices in India’s SENSEX have just broken above a downtrend line, imitating a pattern
from 2004 that led to a strong rally. This interim report updates our wave count for India,
since its wave pattern in particular may offer investors a rewarding long-term
opportunity.

In the March 2009 issue of The Asian-Pacific Financial Forecast, we showed how
pattern, price, time and sentiment considerations were pointing to the end of multi-month,
five-wave declines in most major Asian-Pacific indexes by late March. In most cases,
those lows have likely been achieved.

Although we have looked for a fifth wave down to below the October low in the
SENSEX, it has failed to materialize. That failure plus the recent sharp reversal rally
prompts our return to an earlier wave count. The daily SENSEX chart shows how the
decline since the 2008 high can be counted as three waves. A three-wave decline opens
the possibility of a rally back to near the 2008 highs. But there is reason to set our sights
even higher.
Perhaps the best argument for a bull market in Indian stocks is the potential fractal
relationship we identified in the November 2008 issue, published just four days after the
October low. The weekly chart below is an updated version of the one we showed at that
time. Here is our analysis from the November
issue:
“The Wave Principle teaches that the stock market is a self-similar fractal. That means
that some pieces of its price record—which Ralph Nelson Elliott called waves—resemble
other pieces elsewhere in that record. The weekly chart of India’s SENSEX shows just
such an example.Notice how the up-down sequence labeled Intermediate waves (1) and
(2) (in the small red box) is a microcosm of the larger up-down sequence from the 2003
low to the present (i.e., waves and , in the large black box). In both cases, the wave-
two correction retraced approximately 50% of the wave-one advance. (We have
calculated those retracements using the same logarithmic scale shown in the chart:
logarithmic charting displays equal percentage moves proportionally).

“If we have identified this “nested fractal” relationship correctly, it means that Indian
stocks are about to begin Primary wave of the bull market that began in 2003. Waves
and lasted more than four times the duration of waves (1) and (2). If that same
proportion holds going forward, the SENSEX may continue advancing for 15 years
before reaching the end of wave .”

Since then, the analogy to the 2004 period (“The 2004 Analog”) has become even more
interesting.
Just as then, prices have broken down from an apparent triangle, and then reversed and
broken out above the downtrend line. In 2004, prices never looked back after the
breakout. As long as prices do not fall back below the low of today’s breakout bar, we
will assume that the 2003-2008 bull market will continue to provide a road map to the
future of India’s stock market.

For more information emerging opportunities in Asian markets, download Elliott Wave
International’s free 10-page issue of the Asian Financial Forecast.