Nifty Long term forecast

In this post I am presenting my long term, medium term and short term outlook for Nifty. I would like to start this post with focus on the larger picture. Below given is the monthly chart of Sensex. We can see that since 1992 till date Sensex is moving between two parallel channels.  

The upper range of this channel is at around 24,000 -25,000, while the lower end of this channel is at around 10,000 level. Looking at the given chart I am reasonably sure that markets will not violate this channel (at least not on the upside) therefore any new move in market (till December 2013) will be limited up to the levels of 25,000. Similarly Sensex will bottom out at around 10,000 levels and anything below that is highly improbable at this point in time. 

Readers may remember that I wrote a post on 30, November 2010 (when markets were trading at 21,000 levels and every one was making a case for markets to make a new high in 2011) in which I argued that markets will see side ways movement for next few years and I am not expecting a substantial new high anytime sooner  atleast not before 2014 -2015. I have been proved right till now and market saw one of the worst correction in last 32 years in the year 2011.

Sensex Monthly chart

Let us look at the second chart which shows us the long term trend line for Sensex. The current trend line for index is at around 10,000 levels which again indicates that any fall below 10,000 is highly unlikely and will only happen if there is an economic catastrophe on the horizon.  

Sensex Long term Monthly Chart

The third chart is the yearly candle stick chart for Sensex.  It is my belief that Candle stick can be reasonably used to predict market movements. For example in 2011 market had made an open high candle and it added to my conviction that unless market moves above the high, 2011 will be very bad. I was proven right when market closed 2011 at its lowest point. 

Sensex Yearly Candle stick Chart - Current scenario

When I think about the current economic scenario I think the 2012 candle (for Sensex) can shape up something very similar to what I have presented in the fourth chart.  I would like to caution my readers that there can be 4 -5 scenarios which looks probable but according to my understanding this is most probable scenario whereby Sensex  have opened around 15.5K, will make a high of 18 -19K, a low of 11- 12K and will close the year at around 13-14K.

I would also like to inform my readers that this is not an established way of using candle stick, but I have strong feeling that markets sentiments and time are highly correlated and I have used candle stick with reasonable success in predicting markets sentiments.

Sensex yearly chart with Probable scenario

Let us look at the fifth chart, which is a quarterly chart for Sensex and shows us retracement since the beginning of index.  In the chart we can see that currently index is trading at around 23.6% retracement level which is at 15,600.  If at all this level is broken market will complete 38.2% retracement at 12,700 level and 50% retracement at 10,300 levels. So even under the most pessimistic scenario I expect that markets wont break below 10,500 levels. 

It is very interesting to note that when market crashed in 2008 it took support exactly at 61.8% retracement which is at 7900. 

Sensex Long term retracement chart

The sixth chart is monthly chart and it shows retracement levels for Sensex for the current up move which started in March 2009 from the level of 8000 and lasted till November 2011 and reached to a level of 21,000. If we take a retracement of this level we can see that Sensex have completed 23.6% retracement at 17,800, 38.2% retracement at 15,900, 50% retracement at 14,500, 61.8% retracement at 13,000 and 76.8% retracement at 11,000 levels.

I would like to draw the attention of my readers towards the fact that it took Market tested the first retracement of 17,800 in the month of January 2011 and it took 6 months for market to break this level and move below it. Similarly market tested the retracement level of 15,900 in the month of August 2011 and it again took market 4 months to break this level.

It was for the first time in December 2011 that market closed below 15900 and if we get a three consecutive monthly closing below 15,900, (Therefore according to me it’s very crucial to watch January monthly closing) then I am reasonably sure that we will see market going down to lower levels of 14,500 and 13,000.  

Sensex Monthly Chart - Retracement

Now let us focus on medium term scenario for index.  We can see that market is moving within the range of a downward sliding channel.  Recently market hit the lower end of the channel which was at around 4500 levels and a bounce back from these levels is very much expected. A true bull market will only start if market breaks above the upper channel line which is at around 5250, otherwise market will keep on trading within this channel and continue to slide lower. As of now there are two possible scenarios as to how markets will behave within this channel zone.  

Nifty Weekly chart

In the first scenario we can see that market will move up to 4850 level and then fall to 4250. I have plotted the probable course of index with yellow line. 

Nifty Weekly chart Probable Scenario 1

 In the second scenario we can see that market will move up to 5100 level and then fall to 4250 as indicated by the yellow line. 

Nifty Weekly chart probable scenario II

Now if we want to talk about the immediate scenario, I think one should go long in market only when Sensex closes above 16000 and Nifty closes above 4800 on weekly closing basis. 

I would also like to inform my readers that my overall bias for market is negative and any rally will be a pull back rally which will be followed by a larger fall. 

Second if we see the present correction and compare it with 2008 fall we can observe a very stark difference between the two markets. 2008 was a sharp fall where no one got chance to sell and exit ( there was no distribution of stocks) while 2011 fall is a slow and steady correction where I think lot of distribution is happening. Therefore I think that the kind of bull market that we saw between 2002  - 2008 when Index went up by 45% CAGR is not going to happen any time soon. 

At the most I expect Index to trade range bound between 10,000 to 25,000 for next two years and this type of market is stock pickers market, where you can make money only by choosing the right stock in your portfolio.