black swan consultancy services

The SeNSeX STrip TeaSe

www.blackswan.co.in
Analyst: Jay Thakkar
Email:jay.thakkar@blackswan.co.in
08 June 2009 Phone No: +91 9967994615

BSE SENSEX

CMP: 14952

LONG-TERM TARGET (4 year): 42,000

SHORT-TERM TARGET: 12300 - 11500

Resistances Supports
1 15200 14600
2 15550 14400
3 16500 13500

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 Sensex has broken above a downtrend line which is similar to a
pattern in 2004 that led to a strong rally. There were five wave
RSI Indicators declines in most Asia Pacific Indices by March 2009 and India
also looked for a fifth wave decline in Sensex below its October
low but it failed to materialize.
Relative Strength Index (76.5252)

80

75

70

65

60
This Failure returns to an earlier wave count i.e 3 waves
55
declining pattern. This opens a possibility of a Bull market in
India and when this is compared to the pattern in 2004 the
50

45

40

35
previous Bear market bottom, it clearly opens the gates for
30
Cycle wave 3 in Indian Stock Markets.
25

20

June July August September October November December 2009 February March April May June
In 2009, like 2004 prices had broken down from a triangle and
then moved upwards and broke out above the downtrend line.
MACD So as long as prices do not fall below the downtrend line we can
MACD (874.075)
1000
950
assume a new Bull market in India.
900
850
800
750
700

Even if the declines from their all time high turn out to be only
650
600
550
500
450
400

the first leg of correction of a larger correction, the 3 wave

350
300
250
200
150
100

pattern if it holds should lead to a significant rally in

50
0
-50
-100
-150

intermediate term. The same applies to Korea where we think

-200
-250
-300
-350
-400
-450

this is the start of a new Bull market. Taiwan is definitely in a

-500
-550
-600
-650
-700
-750

Bull market which will be confirmed when it breaks its triangle

-800
-850
-900
-950
-1000

on the upper side.

-1050
-1100
-1150
-1200
-1250
June July August September October Novem ber Decem ber 2009 February March April May June

Chande Momentum Oscilators So, apart from these three indexes in the Asia Pacific region we
think rest are in a Bear market rally which is just wave 1 down.
Chande Momentum Oscillator (54.0405)
80
75

70
The current rally is wave 2 up and the third should draw back
the prices below the October 2008 lows. The reason for this is
65
60
55
50
45

40
35
all the indexes apart from India, Korea and Taiwan have shown
a 5 wave declining pattern so you need to be overweight in these
30
25
20
15

3 Indices compared to major Asian Indexes such as China,

10
5

0
-5

Hong-Kong and Japan.

-10
-15
-20
-25
-30
-35

-40

In the short term, wave structures in all the Indexes indicate that
-45
-50
-55
-60

rally from March low is in its final leg and this can possibly last
-65

-70

June July August September October November December 2009 February March April May June

only for 2 more weeks as Sensex has already rallied for 32

weeks from its low. It can still rally 2 more weeks but it is
already rallied for 8 months from its low so these Fibonacci
figures also signals a red flag head.
 SENSEX (15,040.00, 15,257.00, 14,994.00, 15,103.00, +95.0000) 23000

22000
100.0%
21000

20000
B
19000
(X)
2 18000

17000
ii
1 B
61.8% i iv (ii) c (i) or iii 16000
v
a iii
A iii
15000
50.0% (iv) 2
C v
(i)
4
c
14000
(W) a
(iii) b (ii)
iv
38.2% 13000
b
(v) gap
3 gap
5 1 (iv)
A (i) support line 12000

1
23.6% 4 11000
b (x)

(b)
(iii) 10000
c
(v)
a
a
3 i

b 9000
ii

(a)
(w) c
(c) 8000
0.0% (y)
C5 2
(Y)

November December2008 February March April May June July Augus t September November 2009 February March April May June

There are already 4 gaps on Sensex daily chart and 2 gaps on weekly charts; so, these gaps at least on weekly
charts will be filled sooner or later as markets abhor any vacuum. Sensex is in its Intermediate waves of
Primary wave 3 of Cycle wave 3 so this is third of third wave which is always associated with high
volatility, gaps, extensions, high volume and sharp moves. If the high made on 06/05/2009 i.e. 5th June then
it’s the end of Intermediate wave 1 and Intermediate wave 2 should draw back the prices at least to fill the
gaps on weekly charts but if this is just a minor wave iii of Intermediate wave 1 then Sensex still has a leg on
upper side which will face resistance at 16000-16100, the Fibonacci 61.8% retracement level. So, a close
below 13480 should confirm that Intermediate wave 1 is over and ongoing correction is Intermediate wave 2
correction.

An alternative to this Bullish stance is that the rise from October lows to 5th November is wave A and the
low made on 6th March is wave B and ongoing rally is wave C. At the most it can stretch is up to 16550
which is 2.618 times of wave 1(which signifies that this is a Bear market rally) following which there will be
a wave Z correction. The possibility of wave Z is very low but should not be ruled out if 9400 levels on
Sensex are broken on downside. So, short term traders, Investors are advised to maintain a strict stop loss of
13400 on Sensex for any longs and the best strategy would be avoid over leveraged positions on longs as
mostly all the indicators such as Bollinger Bands, KST, RSI, ROC, MACD are showing weakness and are
favoring Bears.

We advise to start building up your portfolio from 12300 levels on Sensex with a stop of 9400 and a long
term target of 42000.