04 October 2008

Bear Market Analysis 2008 Part 1,2

Bear Market - 2008 - Part 1

Global markets are in midst of a severe sell off. We are in a terrible bear market, and the question we need to ask - Is this the repeat of bear market of 2000-2002?The answer is may be YES.There is amazing similarity you can spot on charts between what is happening now and what happened in 2000-2002. The image below is the Nifty weekly chart of 2000-2002 period -

As you can see in the chart above, the 2000-2002 bear market was not only painful in terms of price correction but also time correction. Here are some facts -

* Nifty peaked in Feb 2000

* It then took 8 months for the market to slide to 200 week moving average. The price correction was 36% and it happened between Feb 2000 and October 2000.

* The market then bounced back from 200 week moving average - 20% bounce. This was Oct-Feb period - generally goo d p eriod of equities* The market then tumbled below 200 week moving average in March 2001.

* The market sharply tumbled 30% on break below 200 week moving average.

* Time Correction - It took 29 months for market to recover once market slipped below 200 week ma. It was a painful slow recovery.

* Every rally below 200 week ma got arrested at 200 week ma during those 29 months of recovery.

* The bull market resumed when market finally broke out above 200 week ma in August 2003.

Ironically now, a similar story is getting played out in 2008. FYI - 200 week moving average = 3648. This level also coincides with 50% retracement of bull run from 920 to 6300.
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Bear Market - 2008 - Part 2

Let's compare 2000-2002 period with current period of 2008 and what scenarios can play out of it's the exact repeat of 2000-2002 period.

(A)2000-2002 Bear Market (B) 2008 bear market
Assume A as 2002 bear mkt, and B as 2008 bear mkt.

A)Nifty peaked in Feb 2000
B)Nifty peaked in Jan 2008

A)It took 8 months for the market to slide to 200 week moving average (Feb 2000 to October 2000)
B)Nifty is about to touch 200 week ma and it's already 9 months (Jan 2008 - Sep 2008)


A)Price correction to 200 week ma from peak = 36%
B)Price correction to 200 week ma from peak = 42% (not reached to 200 week ma)

A)There was 20% bounce after market touched 200 week ma and it happened during Oct-Feb which is goo d p eriod of equities.
B)May Happen ...It means market may bounce from 3650 to 4500 levels in next 3-4 months...pre- election/ seasonal rally

A)The market then tumbled below 200 week moving average in March 2001.
B) The next wave of correction may come in Feb-March 2009 just before elections and market can slip below 200 week ma

A)The market sharply tumbled 30% on break below 200 week moving average.
B)Quite possible during elections - Nifty can tumble 20 to 30% below 200 week ma

A)Time Correction - It took 29 months for market to recover once market slipped below 200 week ma. It was a painful slow recovery.
B)The real bear market painful period may come in 2009-2010 period and bull market may resume in 2011.

A)The bull market resumed when market finally broke out above 200 week ma
B)200 week ma can be a pivot point for next bull run

It means we may see a strong bounce in next 3-4 months before we see another sharp correction.

Source: Deadpresident blog, StateoftheMarket.net
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