Now lets look at weekly chart of Nifty in 2008; and try to spot similarities between what happened in 2000-2002 and what scenarios can play out now.
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.
2000-2002 Bear Market
1. Nifty peaked in Feb 2000
2. It took 8 months for the market to slide to 200 week moving average (Feb 2000 to October 2000)
3.Price correction to 200 week ma from peak = 36%
4.There was 20% bounce after market touched 200 week ma and it happened during Oct-Feb which is good period of equities.
5.The market then tumbled below 200 week moving average in March 2001.
6.The market sharply tumbled 30% on break below 200 week moving average.
7.Time Correction – It took 29 months for market to recover once market slipped below 200 week ma. It was a painful slow recovery
8. The bull market resumed when market finally broke out above 200 week ma
Anticipated 2008-2010 Bear Market
1.Nifty peaked in Jan 2008
2.Nifty is about to touch 200 week ma and it’s already 9 months (Jan 2008 – Sep 2008)
3. Price correction to 200 week ma from peak = 42% (not reached to 200 week ma)
4. May Happen …It means market may bounce from 3650 to 4500 levels in next 3-4 months…pre-election/seasonal rally
5.The next wave of correction may come in Feb-March 2009 just before elections and market can slip below 200 week ma
6. Quite possible during elections – Nifty can tumble 20 to 30% below 200 week ma
7. The real bear market painful period may come in 2009-2010 period and bull market may resume in 2011
8. 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.