Sensex chart since 1979

Below are some interesting charts of the Sensex (Indian Stock Market Index) from 1979 to 2013 (August).

Note – All charts are on a semi-log scale

Sensex Since 1979

 

Sensex Chart Trendline

 

 

Sensex Chart Since 1979

 

 

 

 

 

 

 

 

Some interesting observations

1) All major bull markets are followed by either bear markets or sideways markets.

2) If a prior bull market lasts a year, then the subsequent bear or sideways market lasts a couple of years or so.

3) If the prior bull market is prolonged and lasts 4-5 years with the index multiplying multi fold (a Super cycle Bull Market), then it is always followed immediately by a severe bear market crash (a Super cycle Bear Market). The bear market crash is followed by a multi year sideways market (Super cycle sideways market).

4) Fundamentally, one can correlate this chart with another chart I posted. Bull markets historically are almost always born out of extreme pessimism, undervaluation (P/E of 10-12) and a general lack of interest in stocks by the public and the investment community in general.

5) Bull markets end in euphoric optimism, extreme overvaluation (P/E of 26 or more) and a lot of interest by the general public.

6) Bear markets always begin in doubt but end in severe panic scenario and the stocks become very much undervalued. (P/E of 10-12).

Conclusion

Being informed of these cycles is very important and useful as an investor or a trader.

If one doesn’t have a lot of time to track the markets, they could just consider buying stocks when the P/E ratio of the index is in undervalued territory (around 10+/- 2) and selling when they are in over valued territory (around 26 +/- 2)

To know more about P/E ratios, click here

Going by the past history, we seem to be in a prolonged phase of a super cycle sideways market from around the middle of 2009.

If one believes history as a guide of what is to come, one could expect a bull run in the future to succeed this boring phase that we are in right now.

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I go by my online nick Sengukoi. I have various interests of which finance, economics and the markets are some of the ones at the top of the list. Connect with Sengukoi on Google+

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