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Saturday, October 4, 2008

Bear Market 2000-2002: Replay in 2008

These chart and all are not my cretaions.I may or maynot subscribe the views of it.I thought you guys may like it so posted here.

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.
PART II - Bear Market 2000-2002: Replay in 2008.

Continued from Part I
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, 2008 bear market
Nifty peaked in Feb 2000 Nifty peaked in Jan 2008
It took 8 months for the market to slide to 200 week moving average (Feb 2000 to October 2000) Nifty is about to touch 200 week ma and it's already 9 months (Jan 2008 - Sep 2008)
Price correction to 200 week ma from peak = 36% Price correction to 200 week ma from peak = 42% (not reached to 200 week ma)

There was 20% bounce after market touched 200 week ma and it happened during Oct-Feb which is goo d p eriod of equities. May Happen ...It means market may bounce from 3650 to 4500 levels in next 3-4 months...pre- election/ seasonal rally
The market then tumbled below 200 week moving average in March 2001. The next wave of correction may come in Feb-March 2009 just before elections and market can slip below 200 week ma.

The market sharply tumbled 30% on break below 200 week moving average.Quite possible during elections - Nifty can tumble 20 to 30% below 200 week ma.Time Correction -It took 29 months for market to recover once market slipped below 200 week ma. It was a painful slow recovery. The real bear market painful period may come in 2009-2010 period and bull market may resume in 2011.The bull market resumed when market finally broke out above 200 week ma 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.

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