MUMBAI: First let’s have a look at the mother of all technical charts which is the Dow Jones. 

The above chart is from a period of 1970 to 1987. It can be seen that the Dow was range bound from 1970 to 1983. Later, we got a technical breakout of this consolidation and the Dow rallied to 2700 almost thrice from its breakout level. 

Now, let’s look at what the BSE Sensex did. In the chart below we see an identical pattern that has happened on the Dow chart. The BSE Sensex was range bound from 1992 to 2005, then, we got a technical breakout on the BSE Sensex at around 6000 levels and from there on the BSE Sensex appreciated thrice from the breakout level. The BSE Sensex moved exactly like the Dow!!!     



Now, let’s look back at the Dow chart as to what happened post the big run. The chart attached below shows us clearly that the Dow almost halved in a sharp crack. The Dow experienced one of the worst fall in the year 1987 – 1988. 



Similarly, the BSE Sensex halved from 20000 to 10000 and that too within a year!!! It’s not necessary to attach this chart as everyone has experienced the big fall last year itself.

But what is important for us to know is the future. So let’s see how the Dow shaped up post 1988. The chart is attached below.


 
The above chart shows us that the Dow rallied from around 2000 levels to reach 8000 in the next 12 years which were the golden years for the US markets. Similarly the average lows during the last bear rally on the BSE Sensex was around 10000, so if in the history we have moved parallel with a time lag then 40000 on the BSE Sensex is easily possible in the next 5 to 8 years!!!

Technically the above reasons suggest that the next few years will be recorded as the “Golden years” in the history of the Indian Stock Markets. Therefore investors, there is a lot of money that can be made in the next few years if we invest intelligently. 

In the last few months the NSE Nifty has appreciated more than 50% from the trend reversal pattern which was seen at 2600 levels. Historically the markets have taken a correction before they resume their journey. Now this correction is of two types. One is the “price correction” and the second is the “time correction”. I believe this time there is high probability that we could witness a “time correction”. This means that the Indices will be range bound. This range on the broader note will be between 13500 on the lower side and 15500 on the higher side on the BSE Sensex. Similarly, the levels on the NSE Nifty would be 4100 and 4600. This time correction should last for a good time. The longer it trades in this range the better.

The Indices need this breather to outperform in the future.

I strongly advocate that investors should utilize this consolidation in learning which will help you increase your “Return On Investment” (ROI).

Always remember – Trend is your friend...