Wednesday, June 4, 2008

Market Crash: And then there were none

'And Then there were None' - is a fanous detective novel by Agatha Christie published in 1939. It is Christie's best-known novel. It has sold 115 million copies to date, making it the world's best-selling mystery.
Well, this is what is happeneing to the perennial bulls in the Indian markets. Starting from a confident "This time it is different" to "markets are consolidating" to "Buy for the long term" to "Please help me...", the bulls have been vanishing from the scene, one by one.
On monday (June 2) afternoon, I was on CNBC-TV18 at 3:15 Pm when the Nifty was falling like nobody's business. I was surprised to hear Udayan asking my fellow guest - "What can be done to help the market?". This assumes that the market needs help. Why ? After all, markets move around in cycles, just like human emotions. We have peaks and troughs, which are as natural as day and night.
As I write today, the Nifty closed at 4585, very close to the 4450 lows made in March. What we are about to see is a test of the March lows. If support comes in then we may see a process of base building in the region of 4200 to 4800. If however, the 4450 support is broken, then the markets could go in a free fall (another one!).
What is a 'test' ? When a significant support or resistance level is challenged, the market is undergoing a test of strength (previous support challenged) or weakness (previous resistance challenged). If the test is successful, in this case the support levels hold, then the message is that a process of trend reversal may start soon. Now, a test could easily be a protracted affair. Also, the exact level is not significant. It is the zone which should hold. Thus, the Nifty could fall below 4450, even to 4350 then find support for many weeks. In this scenario, the test would be successful, paving the way for a new up move. Patience then is the correct way to determine the success or failure of such moves.