The Hindu Business Line : 2007 on the charts

It was an exemplary climb for the Sensex from the low of 2900 in 2003 to the current 14000 levels. The correction in May, though short, was significant, as it made the Sensex withdraw 30 per cent from its peak.

The point that is unresolved at this juncture is whether the correction that started in May is extending or we are in a new bull phase.

This issue will be resolved only if the Sensex rallies past 15400. A reversal from 15400 will make the index remain in a broad range between 11000 and 15400 in 2007.

Such a sideways move would be conducive to the bull market extending for a few more years.

A rally beyond 15400 would mean that we are in the fresh leg of a long-term bull market that can take the Sensex to 17600 or 19550.

Such a move would be accompanied by speculative excesses that will be the harbinger of a long-term bear market.

Our preferred view is that the Sensex will remain in a sideways range between 15400 and 11000 in 2007.

The intermediate-term trend will reverse only on a fall below 12500.

The level that long-term investors need to watch is 11000.

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