In April last year, a month after the market had topped out at 30,000, renowned technical analyst Vivek Patil put out a bold forecast: that the Sensex could sink to 23,000-22,000 levels. With his prophecy coming true, he has some more bad news, that the benchmark is likely to find support in the 21,300-22,500 zone but if it breaks, the next target is at 15,000.
In an interview with CNBC-TV18, Patil used the NEoWave theory to make his case, saying that the rally -- a Triple Combination Channel rally -- which started from August 2013 lows of 17,449 and topped out at around 30,000 will get support after giving back 60-70 percent of the upside move (translating into a target of 22,500-21,300). A break of those levels is likely to see the market fall 50 percent from the top: about 15,000.
It is not all gloom and doom though, as Patil thinks that 24,500 on the Sensex, from where a sharp rally took place post the formation of the new government in 2014, will be a key level to watch out for, and the market could again sail back to its all-time highs if the level is taken out again.
Patil, treasurer of Association of Technical Market Analysts, runs a proprietary trading advice website and advises brokerages, and is also a co-developer of a trading software ASA.
The analyst said his forecast is also backed by a number of other chart patterns: such as the market undergoing a 25-30 percent correction every two years, shaving off 50-60 percent every eight years; and said the Sensex's four-year trajectory since 2012 had been weak.
Patil also pointed out that since bottoming out in 2003, the Sensex had charted a support line if you drew a baseline from the 2003 lows and 2009 lows (Blue Base-line in chart below) but now that line has been broken and the next line (Green base-line, linking lows of 1988 and 2003) again works out to a low of 15,000.
For traders, his advice is that as long as the market stays in the lower-top-lower-bottom pattern, every rally needs to be sold into. "This is like an October 2008-like situation. As long as the volatility index (or VIX, which peaked at 35 then but is trading at 25 now) settles, we can't say the panic is over."
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