Sensex consolidates between 9000 and 9500

Sensex picked up the bullish trend when the 20 day WMA crossed over the 50 day WMA from below at 9483 on 19 Dec 2008, the day when Sensex closed at 10099.91. That was the second consecutive close above the dream 10000 mark following the previous day.

For fundamental reasons (Satyam stock fiasco) the market lost a record 750 points in one single day on 7 Jan 2009, when Sensex closed at 9586.88. Thereafter sensex is hovering above 9000 mark and consolidating towards 9500, the point where strong support offered by the 50 day WMA is available.

The 20 day WMA seen pointing down to cross the 50 day WMA from above, which is a bearish note. But the prices are seen moving towards the 50 day WMA signalling a strong support prevailing at current levels. As sensex finding support at current levels, it would be wise to consolidate long positions to reap the benefit of sensex moving towards the dream 10000 mark again.

Technically speaking, with Sensex consolidating between 9000 and 9500, the earlier forecast of bullish trend for 2009 still stands valid.

Sensex turns bullish for 2009

Sensex has seen a strong uptrend in the past one week and closed consistently above 10000 points in the last two trading sessions. The following developments confirm a bullish trend for Sensex in the short term:

• Strong close above 10000 points
• 20 days Weighted moving average (WMA) cutting the 50 days WMA from below (Refer Circle-3 in the image above)
• Triangular formation break-out at top (Refer Circle-2 in yellow in the image above)

Now lets measure the momentum of this bullish move. In other words what is the potential upswing that one can expect out of this bullish trend set to take off in the short term.

The triangulare formation holds the key. In technical parlence, the points forming the triangle are measured to calculate the potential movement from the point of break out. In this case the triangle formation can be considered to have formed with 11800 on top (Refer Circle-1 in blue) and 7800 at the bottom. Therefor the potential upside move is 4000 points from the point of break out. Roughly 9200 being the point of breakout (Circle-2) and the break out is on the top side, the market has the potential to move 4000 points from 9200 points. That fixes a target of 13200 points for Sensex in the near term (about 1 to 3 months from the date of break out).

While 13200 is only a target for the potential upswing, it is advised to book profit at every high touched by Sensex from the current position until it is a confirmed trend reversal with strong indicators for a prolonged bull phase above 14000 points.