Singapore: India’s key stock index could be embarking on its second rally of a five-wave cycle that may help the benchmark surpass its earlier record high, according to technical analysis by Elliott Wave International Inc.

The Bombay Stock Exchange sensitive index, or Sensex, may be breaking out from its downtrend line, Elliott Wave said in its Asian-Pacific Financial Forecast report. The index could be following the pattern of gains and losses set between 2003 and 2008, and have already started on the next leg of a longer bull run that can last for another 15 years, the report said.

Prices in Sensex have just broken above a downtrend line, imitating a pattern from 2004 that led to a strong rally, Elliott Wave said. The Sensex rose 5.6% in the past three days on optimism US plans to rid banks of toxic assets which will help ease the credit crisis and revive global growth. On Wednesday, the benchmark gained 196.86 points, or 2.08%, to close the day at 9,667.9 points.

This five-wave cycle will include three rallies, each peak exceeding the previous one. The first wave began with gains between April 2003 and January 2008, while the bear market in the past year marked the second. The prediction of this rally, or the third wave, is based on a similar pattern of market movements within the first, the researcher said.

The Elliott wave theory, created by US market analyst Ralph Elliott in 1938, attempts to predict future price moves by dividing past trends into sections, or waves, and calculating changes in value. Gainesville, Georgia-based Elliott Wave International was founded by Robert Prechter, who was famous for cautioning investors that stocks would slump two weeks before the 1987 stock market crash.