The Hindu Business Line : What do the charts portray?

THE BSE Sensex (9386) and S&P CNX Nifty (2834) enjoyed another north-bound year in 2005. A look at the weekly and monthly charts indicates that the long-term outlook is bullish. Having recorded a 41 per cent gain in 2005, the Sensex appears headed towards the target zone at 9900-10200. This target is likely to be reached in early 2006.

The index is likely to get into a major corrective phase on the completion of the present leg of the upward move. The analysis is based on the premise that the index is in Wave 5 of the sequence of waves that commenced at the low of 4227 recorded on May 17, 2004.

In Elliott Wave terminology, the Sensex completed Wave 1 at the high of 6696 (week ended Jan 8, 2005), Wave 2 at 6138 (April 29, 2005), Wave 3 at 8821 (October 7, 2005) and Wave 4 at the low of 7656 (October 28).

Wave 5 is likely to be completed at the target zone of 9900-10200. If the index faces resistance at this target zone, there is a possibility of a subsequent fall to at least 9000-9100. If our Elliott Wave analysis is correct, there is a fair chance that the index would fail to hold at 9000-9100 range and could get into a sharper correction extending up to 7400-7600.

The possibility of a drop to 7400-7600 would be negated on a close above 10700. This would indicate that the undertone is bullish and 2006 could turn out to be another memorable year for the investors in the equity market. For the moment, we would stick to the view that the index is likely to top out at 9900-10200 and probably get into a major corrective phase subsequently.

As far the S&P CNX Nifty is concerned, a move to 3100-3150 range appears likely. After registering a top at around this target zone, the index could drop to 2300-2400 subsequently. This view would be negated on a close above 3200. A close below 2720 for the Nifty and 9000 for the Sensex would be an early indicator that the domestic stock market is getting into a major corrective phase.

For the long-term investors, any sharp correction on the anticipated lines will present an opportunity to accumulate stocks. The major upward move would commence on the completion of the anticipated correction. For the moment, we advise investors to remain cautious and take profits regularly.

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