The above levels are the biggest debate between all types of technical analysts be it Elliot, Classical, Wave or whatever.

Although I am mainly stock specific so prefer to go with the Classical patterns but do tend to have a look into various theories for index calculations.

Now let’s see the points of debate based on primary assumptions of technical analysis.

1) Bullish or Bearish in the long term.
2) Historical Comparisons.
3) Time Period.
4) Price Target.
5) Miscellaneous Observations
6) Observations and Conclusions.

1) Bullish or Bearish
There is hardly any technical analysis theory or analyst who would give a 6k Sensex and 2k Nifty target and consider the indices to be in a major bear trend and we may not go above 21k in the coming decade and continue to be in a range of 6k-21k as we did in 1990-2000.

Majority of the technical theories and analysts continue to maintain that Sensex is in a long term bull market and may knock new highs in the next decade or say 3-5 years.

2) Historical Comparisons.
Let’s start with bear markets in India.
Although there is no hard and fast rule about what could be termed a bear markets. I would consider any fall of 20-50 % from peak in absolute terms and spans for more then 5 months to 2-3 years.

I have still not understood why every analyst thinks it was only 2000 to 2003 was the only bear market but that could be because all have been tracking Nifty only which started in 1994.

Sensex corrected 40 % in 1986 -1988, 1991, 1992-1993. The important one would be 1986-1988 and 1992-1993 as they lasted for more then 8-13 months and can be used for the comparisons.

Although if one is looking at a structural bull market then the most important one to be considered would be the 1986-1988 bear phase. As this goes well with the multi-year breakout which happened in 2005.

Comparing current bear market phase to 1992-1993 and 2000-2003 Sensex has one concern that during the period of 1990-2003 Sensex continued to range between 2k-6k. And all through after a bull run market ended up touching the lower side range of 2k. So in such a comparison it would imply a testing of the breakout of 6k in 2005 for current index and then make a new range of 6k-21k which may last for another decade ??? !.So definitely there are questions on both sides whether to consider 1992-1993 , 2000-2003 or consider the 1986-1988 corrections.

Charts for reference:
Sensex 1986-1988 correction
Sensex 1992-1993 correction
Sensex 2000-2003 correction.

USA – Dow Jones

This is the oldest available index in the world and also the biggest economy so it makes sense to compare a highly mature market for any part of technical analysis.

Here again the structural bull runs were seen in 1930s and 1980s. So 1937-1942 and 1987 would be important ones to watch for comparison as these corrections led to the major bull rallies. I have been comparing the US economic scenario of 1980s to India of 2000s. And the pattern of multi-year breakout seems to be very similar on both cases. Have extensively included the same in our come look into the future presentation.

Also one more observation is that October is a Bear Killer month for Dow Jones. According to the Stock Traders Almanac (which is the authority on seasonal trends), October crashes took place during 1929 and 1987. October downturns also took place in 1978, 1979, 1989, and 1997. October, however, is also known as a "bear killer". Bear markets ended during October in 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, and 2002. Charts 2, 3, and 4 show October bottoms in 1987, 1998, and 2002. October also saw big gains after bad Septembers in the five years from 1999-2003. We have to consider October month importantly as US backed recession is leading to financial crisis all over the world.

3) Time Period.
This is the most difficult part of analysis and nothing can be termed to be accurate. But Classical and Elliot wave analysis do prefer a correction span of 8/13/21/34 months.

Now for Sensex there are mainly two camps which believe either the correction span ends in October 8 months or February/March 09 or the other one being the correction span goes well into Oct 09 or Nov 2010.

If 11k/12.5k is supposed to be a bottom then end of 2009 could see the new rally commence. This theory lays mainly a comparison to 1987, 1992 bear phase.If 9500 or lower has to come in Sensex then yes the focus may shift to a correction span of 21 /34 months and the new rally to commence in 2011. This theory lays mainly a comparison to the 2000-2003 bear phase.
Although it is very difficult to give a time analysis for markets and economies but this is an attempt which many of the theories may point out too.
I personally would prefer and give a very high probability to the 1st theory of 11k/12.5k and 2009 mid to end to be start of the next rally as this has been the standard view since last few months about an econ
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Punj Lloyd and Educomp cracked quickly as expected and should be covered on tgts.

Bank of India which stood the storm may finally crack if sustains below 260 could tgt 248-225.

Bharti Airtel another stock which has not broken 680-700 levels in spite of market fluctuations. Need to watch that level closely if holds could give a bounce other wise a quick drop.

BHEL important supports at 1340-1400 which should hold on for some time.

RPL has broken below 140 and the next major support is placed at 108-112 .Reliance inds has a strong support at 1550 and one needs to buy the stock in staggered manner.

Chamble Fert,IFCI , IDFC look highly oversold and can give a sharp pullback and are fundamentally well placed for long term value also .

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Market Observations and Thoughts :

Dow Jones Technical View :

In my last update on Dow these were the words used ---

The next dip should take it to the 61 % correction level which comes to 9800-10000 zone. And for the very long basis 38 % comes around 9500 .
So in the bear scenario it is in the index could well settle out closer to 9800 +- 200 points.

After the bounce from 10500 levels Dow Jones has taken the dip towards 9800 zone and in worst case can go till 9500 odd . Technically it will get highly oversold in this zone and a bounce back should be in the offing from this point and then some sideways move. Although technically the index looks weak in the long run .

Crude : The downslide continues in crude and could see respite only at 85 levels and 100-101 on upside could be an important resistance.
Gold : The volatility remains higher then usual coz of the economic scenario. Resistance on upside 885/900 and support on downside 780/810.

Randomn Thoughts :

Some of the lines which can be important for next few hours :

" Lay Investors dont sell in LOSS they sell only in PANICs"

" Venturing out in rough weather can be fruitfull in market"

Suddenly one can see a panic and pessimism equivalent to the euphoria which we were seeing in January 2008 . The capitulation and panic may have brought in such unimaginable and dirt prices in many stocks to the extent of 80-90 % of the peak price but such a fall may create a short term or even a very important long term bottom zone after which markets could consolidate. Like in Novemeber to January Sensex dint make very big highs or crossovers but continued to stay at higher levels we may see Sensex and indices continue to stay at lower levels and consolidate before deciding the next move.
All global markets have turned highly oversold in the current state and quite a lot of economic news might have been already discounted in the near term and a decent bounce should be in the offing. There is a lot of blood on the street but thats when the real opportunities come in and also the greed of lower level buying may dissuade investors the same way greed dissuaded investors from selling in January. So even if one is panicky and wants to get out he may get little better chances in coming days!.

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Market strategy :
Since 16k-17k broke down on Sensex the view was consistent to exit and wait for 14k-12.5k zones for investment. Again after the accumulation the view was to exit at 15k + .

Yet again the view has been consistent to buy in stock specific in small lots from 13k-11.2k. Although this would be easy for people who have been following the views strictly and for others the pain in markets could get unbearable as of now.

This is a time only for investors who have patience and do pick up good quality stocks with due research done. As it happens in euphoria stocks can stay at highly overvalued levels for quite some time similarly in pessimism and panics lot of stocks can stay much lower then fair value. So best way to go is buy in small lots and go staggered as its very difficult to spot an exact bottom in panics. 11200-12200 is a good zone to buy stock specific and look to book them partially on profits of 15-25 % to keep a good cash level . One should not commit more then 50 % at 11900-13k and add only at 11200-11500 if it comes or wait . For people those who are stuck can commit fresh money at 11500 or roundabouts only with a view to exit on 25 % gains and lock that money out as part of discipline and consider it fresh money !!! .

For traders this may not be the best time as volatility will be very high and one needs to play with strict stops and agility.

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Sensex Technical View :
Finally Sensex breaks below the 12300-12500 level and is well set towards the zone of 11200/11500/11900. Sensex is in the panic selling zone and should soon see support coming around the lower end of the channel at 11200 -11500 zone . The levels are important on closing basis for near term. Although it is very difficult to spot an exact short term bottom in current conditions but technically would expect it to be between 11200-11900 from where markets could bounce back in a bear rally which can be to the extent of 20-25% from lows technically. This is a technical view only and doesnt consider other factors !

Even if technically one expects a fall to 9500-9700 Sensex needs a bear rally to an extent of 20 % from lows. The exact levels for the bear rally can be discussed once we can confirm a bottom in the current zone.

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BPCL , HPCL are firming up on charts and could be bought on dips or as and when crude dips below 90 could see a run up .
Educomp below 3050 if sustains could give a dip to 2800 or lower and can be used for a quick trade.

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Lupin yet again is trying to give a breakout above 780 but vols are low . Difficult stock to trade though but a move above 780 could tgt 850 + .
Punj lloyd if breaks 260 go short for a tgt of 240 in short term with a stop of 269

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On further pressure, Chambal could go to 36, 30, and Nagarjuna could go all the way to 17-18....

better q.of this mth yes ...

Dear Nooresh, You touched one very important point. Let me make an attempt to add to it one more thing. This year\\`s higher inflation forms a base for next year. So if there is no significant difference in the price rises from now onwards, inflation figures will be lower. But is has nothing to do with the NPM of the companies, as the input costs are still higher than the previous higher( quite often, people get confused that lesser inflation means a decline in prices!). Let me make an attempt to see it from Individual and industry perspective. 1)Individual- For individuals, it( lower inflation) doesnt make any differnece unless their net incomes raise more than the raise in inflation, taking the previous year as base. 2)Industry- For companies, unless they pass on the higher input costs to customers, it( lower inflation) doesnt really make any difference. In fact there are many misconceptions about inflation. regards...

Amazing sir, I never knew that the base is of the previous year, i always thought it was of the previous week. Same goes for growth figures. ...

Good post Nooresh. I too was thinking of the base effect and how misleading it could really be. To compare inflation on a continual basis (past week to current week etc.) one should either look at the actual values (index) or use a common base for calculations. The problem here would be to determine what that base should be. One idea would be to use the previous week's index as base. Here if it is a positive number then inflation is rising or if it is a negative number inflation is going down. Of course the values themselves would be much smaller (about a percent or so). Regards OT ...

Hi Nooresh. inflation is down... how much rally we can expect in banking counter? you have any target for BOB and SBI? Thanks, Shyam...

Nooresh, whats your take on Torrent Power? It was your fav stock earlier....