Time to be Cautiously Optimistic!!

Setting up for a move of 20% !

* Please refer important Disclosures and Disclaimer at the end of the report

The Long Term Channel for last 1 year .. - Got to Bounce even if it has to fall harder!

Sensex is trading in a Channel of 2000 - 2400 points over past 10 months. Exception being Breakout move in Sep - Nov 2010 of the same magnitude of 2400 points (Green Box). Current Channel Supports placed at 17800 and 17300 (Blue and Red Lines). Even if markets fall, they will find strong support at 17800 to 17300 levels and bounce back sharply. Thus the preferred stance is bullish with downsides being limited to 17000-17300.

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Falls have been of 11-12% and lasts for 25-35 sessions!

- We are down 9% and done with 30-31 sessions already!

Majority of down moves range of 11-12 %, with exceptions being post-elections and post Diwali around 16-17%. But the index had seen a good rise before the above falls. We are already down 9% and expect the current down move to be in line with average, i.e. 11 -12%, which gives a bottom of 17,400. The down moves lasted for 25-35 sessions. For now we are already done with 30-31 sessions. If market is to follow the pattern then a bottom could be formed in next 5-7 sessions.

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Double Convergence of Moving Averages after 3 years!!

- Setting up for a directional move of 20% or more!

We have plotted Major Moving Averages from 2000 - 2011 and highlighted points of double convergence of all 3 Moving averages with pink grading and hand symbol. Every time this phenomenon has occurred, markets have given a directional move of 20% or more over the next 6 months and continued a Bullish / Bearish trend for 12 - 18 months. This signal has worked magnificently for us and forms an epitome of our technical study. Sensex is setting up for a similar signal over the next 1-2 months and may give breakout indications post June. The preferred side is

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Double Convergence of Moving Averages 1980-2000!!!

-Major moves were signaled by this convergence!!

Sensex 1980-2000 also saw many such signals at an interval of 1-3 years and good directional moves after the signal.

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Markets may bounce back sharply from 17000-17800.

-Breakout signal in post July and may head to 20000 by year end!

As highlighted earlier, Sensex has strong supports at 17800 and 17000-17300. Preferred bullish scenario is - Markets to bottom out at 17800 - 17000 levels and stage a sharp pull back. After consolidating in June-July, it gives a fresh breakout heading towards 20000 over the next 6-9 months. (Estimates Blue and Orange patterns.) The moving averages and breakout signal will come after the pullback/consolidation but a clear strategy now is to buy on sharp declines to the supports mentioned.
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Nifty similar levels come to around 5340 and 5170-5240

Conclusion
Expect the Markets to bottom out over the next 2 weeks for the short term. Sharp pullback from 17000 / 5200 or 17800/ 5340 on Sensex/Nifty which may head up to 18700/5600 + levels which is a review point. The market consolidates for sometime before giving a directional breakout/ breakdown over the next 1-2 months. The major interesting part is we have a big moving average signal which gives a magnitude of 20% move as well as a start of a trending market which will provide more trading and investing opportunities. A directional trending market is the best for traders/ investors which is what Sensex/Nifty is setting up for. Warning Bell: Any global upheaval may drag the markets below 17000. Time to be Cautiously Optimistic.
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