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| An examination of daily and weekly charts of The Sensex and the Nifty leaves one with an overwhelming impression of bullishness. The markets bottomed recently at around 2900 Sensex (920 Nifty) in April 2003. |
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| Since then, prices have moved up with a vengeance. Just before the recent correction, prices peaked at around 4475 (1430). |
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| We have a clear case of a strong long-term uptrend. So far, this bull run has lasted 18 weeks and the markets have gained around 55 per cent. |
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| Volumes have been excellent and breadth has been good. There isn't an obvious technical cloud on the horizon. |
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| The current correction looks like an intermediate downtrend of the sort one would expect in any market. If the history of Indian bull markets is any indicator this run has plenty of upside yet to go in terms of both time and distance. |
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| Minimum expectations: The market should travel to a minimum peak of at least 5000 Sensex (1650 Nifty) and the uptrend should last at least another five months - until around the 2004 Budget with the peak coming then, or later. |
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| Average expectation: It isn't over-optimistic to expect the markets to move up till a peak of 5300-5500 Sensex and for the bull run to last till around July 2004. |
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| Maximum expectation: We would not be very surprised if the markets actually end up reaching Sensex 6150 or exceeding that all-time peak. Normally, every successive Indian bull market has somewhat exceeded the peak values reached in the previous one. |
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| In the Indian context, bull runs have tended to last between a minimum of nine months (December 1996-August 1997) and more usually, around 15 months (December 1998-February 2000, July 1993-September 1994 and February 1991-April 1992). So there's plenty of time to spare for further gains. |
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| In each previous bull run, the markets have advanced much further than 55 per cent off its base. The maximum rise was during the Harshad bull run of 1991-92 when the markets returned 350 per cent in 15 months. |
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| The minimum return was around 70 per cent in 1997, and in 1993-94 and 1999-2000 the returns were 135 per cent and 125 per cent respectively. So once again, there's plenty of room to spare from further gains. |
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| If one uses Fibonacci retracement calculations, we also get targets of around 4700 and 5200 as the 61.8 per cent and 75 per cent retracements of the decline between March 2000-September 2001. |
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| We might try to take an estimate of how much of a downside there may be, if the markets do reverse direction again and the bears take over. |
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| Through the use of Fibonacci retracement theory, we see that a possible dip till around the 3700 level is possible. That would be a 50 per cent retracement of the current gains and there is pretty good support visible on the charts around the 3700 level. |
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| It's only when one looks at really long timeframes that a cause for worry surfaces. Since 1992, the market has shown a great preference for range-trading between roughly Sensex 2600-4600. The market has broken out of that range only once, during the IT-driven bull-run in 1999-2000. |
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| It is now very close to the top of that critical range. Technicians will note that volumes were much higher during the critical stages of the 1999-2000 run when prices actually rose above 4600 Sensex. Fears of political volatility coupled to selling pressure at 4600 could now hold the market back. |
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| Does the market have the gumption to break out above 4600 all over again? If it does, the return targets mentioned above become realistic. But there will be a lot of resistance in the 4400-plus zone. |
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| Every time the market approaches those levels, investors who have been stuck with losers bought in previous bull runs start cutting their losses. That resistance is, in one sense, causing this current correction. |
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