BSE Sensex could see breakout

Price at time of writing – 22,214.

In a departure from my updates of the major global indices, this week I focus on whether smaller markets can provide us with useful early clues.

In particular, I am paying attention to Asia and the sub-continent, where a lot of the recent gloom has been centred. Notably, the Indian BSE Sensex index suggests we should not be as gloomy on emerging markets as we appear to have become.

India’s leading share index is only worth charting from it’s major low in 2003. The rise that followed might also be defined as marking India’s emergence onto the world economic stage. By January 2008 the Sensex had fulfilled a 600% rise over that near five-year period, and, in line with all global share markets, a severe correction then followed. The index then saw another 150% advance, taking it back to its all-time high, and creating a double-top in the process.

As the chart demonstrates, in the past month the Sensex has broken above this major band of resistance. This suggests a breakout into a new and higher trading band is upon us. I could be tempted to recommend we now double the initial 600% rise (from the 2003 low) to one of 1200%. However, this would imply the index going to the 38,250 level, and may be a little ambitious at this stage. Over the shorter term, a rise of around 8% to within the minor resistance band of 24,000-24,555 can be expected.

Recommendation: buy. Trading target 24,000. Stop-losses can be activated on a break below 20,400.

India BSE Sensex chart

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