Will Sensex touch 20,000 and 10,000 in 2010?

Last three years have seen tremendous unidirectional moves. If 2007 was the great bull year which saw indices go up by more than 50% from an already high level, 2008 saw the markets plunge more than 50% - the worst bear market crash in the last two decades. Again when everything appeared lost, markets returned nearly 80% in 2009, one of the best performing years for our bourses. After these three years with extreme movements it will be interesting to watch how we fare this year. Though markets can always surprise us and it is impossible to predict movements with any degree of certainty, yet it will be worthwhile to analyse previous market trends and come out with a likely road map for the Sensex in 2010

We believe that contrary to predictions of a range bound market, we are going to see heightened volatility this year. Markets are likely to touch or maybe cross the all time high of 21,000 on the Sensex and also plummet close to the January 2009 level of 9,500 this year. What makes us predict such extreme change of sentiments within one year are the past trends, long term technical indicators, quantum of good and bad news likely to pour in this year, sensitiveness of the markets to the news flow and the fickle nature of funds which help drive our markets up or down.    

Generally every great bull market is followed by a multi year consolidation phase. The last big bull market which ended in 1992 was followed by a nearly 12 year consolidation period in which on at least four occasions the market attempted to conquer the all time high of 4600 level of Sensex. Nearly all such unsuccessful attempts were followed by deep crashes which reduced the value of stocks by close to 50% from their peak rates. In the next bull market peak of around 21000 was made in January, 2008 and the markets thereafter bottomed out in March, 2009 at a level of around 8000. In this age of the internet all cycles of boom and gloom are getting suppressed. So we can expect the markets to try and conquer 21,000 a number of times over the next few years and correct sharply thereafter. We have already traveled to 17,500 and hence a testing of a high close to 21,000 and subsequent crash to a level of around 10,000 seem quite possible in the next twelve months, going by the past indicators.