Market Technicals: Sensex @ 50,000 – Living Through A 125x Event

The Sensex was actually introduced in 1986 but with a base of 1979 at 100. So, it was at around 540 when it got introduced. We were a motlley gang of technical analysts back then—just a handful of us, plotting charts by hand on sheets of graph paper—and we dived into it with gusto. In 1986 we were in a nice bull market (from the 1984 Rajiv Gandhi election) and it was a great time to be long in that market. We made all kinds of charts I recall, daily, weekly, then Log scale weekly and monthly, calculating RSI by hand on a calculator, and enjoying every minute of the effort! I am sure that most technical analysts today may not even know of the existence of Log scale chart paper!

The bull market ended in June 1986 with the Sensex hitting a high at 664. Seems incredible, right? Today intraday movements are more than that! We were all very active with Elliot Wave back then and were making large forecasts. Soon after the high was recognised (which, I recall now was done surprisingly early) we made a forecast for around 435 on the Sensex. And it happened in a few months. And then, newspapers started publishing us because we were speaking something different from what passed for financial journalism back then! The fall continued, with some rallies in between, falling all the way to 390 by March 1988. Amazingly, I think having the index chart and working with it prevented many technical analysts from getting caught in that catastrophic 41% decline! The new trading ring at the present BSE Tower was on by then and the prices were being displayed on a big electronic board inside the Ring.

And I suddenly thought, man, what a journey! I have lived through a 125x event! People of my generation who have been active in the markets since then are a blessed lot for sure, for we witnessed the entire growth of the Sensex from the trough to its current peak!

For the record, I was there when the Sensex theoretical low of April 1979 was hit but since no measures were available at that time, I shall restrict it to the actually-experienced real low of 390.

While we all look at Sensex at 50,000, it would be relevant to think of how we have fared with this 125x event?

I look back and find that I have certainly not had a similar growth in my fortunes perhaps like some of my colleagues have had. But it has not been a bad one either. For sure, it has been quite a roller coaster ride, one of great learning and great discoveries.

I would say that perhaps more than wealth building, it has been the extraordinary learning that occurred through this great journey that I would treasure and the most. Markets went from a closed country club—Black Cobra ruled—to the first of the institutional activity (I didn’t think too much of it at that time), to the advent of FIIs in 1993 (remember Mastergain?), the shift to online trading, the creation of the NSE, the tech boom, etc. etc. etc. Oh, what a fantastic roller coaster of 20+ years! If I could go back in time, using what I know, I would probably be worth a billion dollars! But I do think I shall settle for the zillions worth in learning and experiences!! That was much more than a 125x event in my life! So I guess, it turned out alright!

Well, nostalgia done. Back to the present state of markets.

Some minor changes that I noticed in the week gone by.

Aha, I thought! Now, maybe, a change of trend? Nope. The prices could not even move far enough to break the support trendline from the November low. So, off to another push to new highs.

In an earlier piece, I had remarked on the very small range candle bodies that I stated implied continued bullish status.

One should always be alert about an increase in volatility at high price levels, for it is one of the surest signs of distribution. No bull market ends without there being distribution, unless there is some huge fundamental event, like in 2008.

Any faltering of the rally momentum (we now have divergence on the 60-minute chart as well) would be a good warning bell.

These three can hold out some warnings of a possible change looming ahead.

It appears that the rejoicing at the new high on Jan. 21 was short-lived. This will especially be so if there is a continuation beneath the prior swing low at 14,250. The last time such a pattern threatened was back in Sept. 2020 but that came to naught very quickly. If that happens, the support trendline will also get penetrated.

Note here that a failure to pull the bear switch when the situation is supportive of that will be a redoubled signal of bullishness. This is one of the curious aspects of the market that newer traders don’t understand. Weakness shows because longs unload and adventurous shorts appear. Both of them act in anticipation of a down move. But if that expectation fails then you have three sets of people who shall now become active. First, the new buyers (who actually negated the bearish set up), second are the shorts squaring up and the third will be old investors who let go but some of whom scramble to get back in once again. Thus the trend moves with greater speed than before. Along the sidelines, more bears lose their resolve to sell while profit-takers hang back because the market has looked up once again! This is a process that keeps happening all the time.

So, if you are a serious player in the market then you had better shelve any plans of a Goa holiday or taking some time out. The market is about to play its next hand. You really don’t want to be missing that.

CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise and NeoTrader; and chief investment officer of Plus Delta Portfolios.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.