BOMBAY SENSEX TECHNICAL

ANALYSIS

Author: Raja Ponnusamy

Creation Date: Oct 22, 2010
Last Updated: Oct 22, 2010
Sensex Weekly Chart

Basic Elliott Waves

This technical Analysis is based on Elliott Wave Principle, which states,
market moves in waves of 5 (trend waves) and 3 (correction).

In the above figure, all the waves in blue color are actionary waves (that
means, it will itself will be subdivided into 5waves), and all the waves in Red
are correction waves (this means it will be subdivided into 3 waves). All
actionary waves (completion of 5 waves) should be followed by correction of
3 waves. This holds good for both Bull and Bear markets.

Each 5 wave should be followed by a correction of 3 waves, which retraces

minimum of 50% of previous 5 waves.
To illustrate the picture of how market moves in Waves, look at the below
Sensex weekly Chart.

Lets us take a look at the Weekly Sensex chart. The all time high 21200 was
attained on 11/01/2008. From then on market went into correction. We can
see clearly the correction was in 3 waves (w, x, y) and corrected 78.6% of the
move from 4227 to 21200.

Correction ended at 7760 on 31/10/2008.

Take a close look at the new bull market beginning 31/10/2008. We can see
the market moved in 5 clears waves and currently in the final Wave (V).
The market made new high for Wave (III), but the RSI (at the bottom of the
weekly chart) did not make a new high, this indicates, we are in the final
wave of this bull Run.
Sensex Weekly Chart with Time Analysis

In the following weekly chart shows, Waves I to III took 51 weeks

(approximately 31/10/08 to 23/10/09). With this information, when we
project the final wave V ending period, the possible weeks would be 1 st week
of Jan11.

The next question will be, how far this Wave V will go?
Sensex Daily Chart

Let us take a look at the daily chart which magnifies the Wave V (in purple
color from the Weekly chart) in detail.

We are in final Black Wave V of Purple V. For this Black Wave V to complete,
Blue waves 1 to 5 needs to be completed.

We can see we are in Black Wave V of Purple Wave V. This shows the bull
market trend will soon come to an end.

In terms of price, Sensex will make a new high in the next 10 weeks before
turning down. The key resistance would be previous high of 21160 and up to
22100.

Indicator Stochastic shows the market is turning up for the final push into
21000 areas.
Sensex Daily Chart with Time Analysis

In the following Daily chart shows, Waves I to III took 101days

(approximately 25/5/2010 to 14/10/2010).

When we apply Fibonacci ratio, the possible reversal days would be around
Jan 14 2011 (61.8% of 101 days).

Watch closely the Weekly time projection for Purple Wave V end is around
1st week of Jan 2011 and Daily Time analysis projects it to be Jan14 2011.

When multiple projections pointing to same date range, the probability of

occurrence e would be high.
Sensex – What happens next??

The key question is, what happens when Purple Wave V ends (from Weekly
chart).

By this time we know, after 5 waves advance (purple waves I to V), new
correction (3 waves) or new Trend ( 5 waves otherwise new Bear market )
establishes, which will have very significant impact.

Scenario 1:

Purple Wave V end, is the new Bull market Trend, then the correction will
happen minimum of 61.8% of the previous 5 wave advance.

The Sensex will correct at least till 13000. This means, Year 2011 would be
painful for the investors (as the market would be choppy and directionless).

Once the correction completes, market will rally into new highs well above
21200 (in 5 wave sequence)
Scenario 2:

Say the purple Wave V is the end of the bull market and new Bear market
begins. In this case Sensex will go below 7810 (which was the 2008 low).

If this scenario turns out to be true, then the market would be very fast and
furious. When this happens, panic sets in and there would be no buyers and
only sellers (like in Year 2008).
Sensex Final Conclusion

Sensex will reach key technical levels in the next 3 months time. When the
market makes a top and turn down, it will be violent and furious.

In either of the two scenarios mentioned above, Sensex will correct bare
minimum to 13000 points after making the top (which I am expecting it to be
around 21200).