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Will there be a new high?

If the market moves up, it is likely to find some selling taking place in the future at a pressure point of 19,779. It may encounter some resistance on a strong pressure day around May 21, 2010.

Prakash Gaba | Print Edition: January, 2010

Prakash Gaba
Prakash Gaba
In December 2007, the market traded at over 20,000, which was a historic high. A year later, in December 2008, it had fallen to below 10,000, losing over half its points. Come December 2009 and the market is still struggling to regain what it lost a year ago. Welcome to the stock market vagaries that are common to markets across the world. Fortunes are made here and fortunes are lost, but nobody is immune to it.

As we start the new year, the question upper-most in almost everyone's mind is when the BSE Sensex will breach the all-time high of 21,206.77 that was recorded on 10 January 2008. But is this really an issue any more?

The market can be analysed in many time frames. Let's see how it is likely to behave this year and the sectors that could make money for investors. We will also look at the pressure points and pressure days that the market is likely to encounter in the future.

On a larger canvas, the steep fall that the market has witnessed, from a high of 21,206.77 to the low of 7,697.39 on 27 October 2008, is a reactive move. This basically means that the uptrend, which commenced at 2,594.87 on 21 September 2001, will now resume its journey. The downturn during 2008 was just a reaction if we consider the larger time cycles.

The clue to the future lies in the study of the past. This means that trends constantly change with time. For instance, the 21 September 2001 and the 27 October 2008 lows are very strong cycle lows, and so, future cycles are likely to be related in some way or the other to these two troughs.

Technically, the trend is still up and has not been compromised so far. The market looks tired at 17,500 levels and could move in any direction. The good news is that any reaction on the downside, if it happens, would be limited to 15,000 levels. As long as 15,000 levels hold, I would maintain that the reactions are within the acceptable technical parameters and the prior uptrend is still intact.

If the stock market rises in the future, then on the way up there might be some selling which will take place at a pressure point of 19,779. On the time cycles front, the market may encounter some resistance on a strong pressure day around 21 May 2010, give or take a few days. This pressure day will have significance only when, and if, the market gains a new high. Whenever the new peak is registered, that point will have to be computed on time and price parameters to see if there is any technical significance. Until this is done, the prior trend will continue.

Coming to specifics, the oil and gas sector is the one to track for opportunities in 2010. The index for this sector can be bought on dips and closer to the levels of around 9,400. The realty sector, on the other hand, has taken a beating. But don't write it off entirely. Technically, the BSE Realty Index has bottomed out. It has a strong support at 3,400 levels and can climb to around 6,000 levels in the future.

Prakash Gaba is the Mumbai-based Technical Analyst & Trader

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