“I hope all is well in Ireland! Hopefully spring is finally making its mark.
“I noted an interesting development in the Sensex when reviewing charts this afternoon. Following an upside key weekly reversal near 16,000 last June, the Sensex saw a steady upward trend until topping out above 20,000 in January, somewhat below the 2008 and 2010 highs at 21,000. Since January we have seen a correction that last week reached a low just above 18,000. Looking at the chart the Sensex last week posted an upside key reversal (although the low was only some thirty points below the previous week's low) similar in size to the one last June and with a little follow up today, Monday. If I understand your audios correctly, we are probably in the second half of stock market corrections, with risk of some additional downside in the coming weeks. Do you see downside risk for the Sensex from here and how do you see the potential for Sensex to test and potentially break above previous highs near 20,000 and 21,000 in the next twelve months?”
Eoin Treacy's view Thank you for this informative email and yes spring has finally arrived. The cherry blossoms in front of my home are just beginning to peek through. I hope the winter in Norway has also given way to spring.
David pointed out on the 16th that the Sensex posted an upside key day reversal last Monday and commented on India again on Thursday. The Sensex finished the week on such strong terms that it also completed an upside weekly key reversal as you point out.
India's banking sector has led in both directions over the last few years and rallied particularly impressively from the April 10th lows. While it is somewhat overbought in the short term, a sustained move below 12,500 would be required question to question medium-term potential for additional upside.
Taking the banking sector's short-term overbought condition into account, we cannot rule out the possibility that the Sensex will spend some additional time in the current region. However a sustained move below last week's low would be required to question recovery potential.