Friday, October 31, 2008

How does a bull market start ?

Readers are going to find the title of this post, amusing. The last post said rather boldly - "Enjoy This Bear Market Rally". Now, today, I am talking about a bull market.

The reason is that every market has an inflection point (A moment of dramatic change), the point at which a market stage ends, and, a new market stage begins.

Now a bull market begins with a lot of base building. When the process of base building leads to a breakout, we say with some certainty that a new bull market has begun. But, is it possible to define the point at which we can say that the bear market has come to an end ?

We will turn to the experts to seek an answer to this question.

William O’Neil, developer of the CANSLIM investing method says:

"All major bull markets started with a reversal and then a follow-through within the next four to ten trading days."

What is a follow through day ? The Follow Through day occurs when the Index records a gain of at least 3% with above average volume.

On Monday, October 27, the Nifty and the Sensex did have a reversal day. The Nifty fell to 2252, then recovered all its intra day losses to close at 2525. Now, the Index needs a follow through day within the next four to ten trading days. With two holidays this week, the fourth trading day falls on Monday, November 3, and the tenth trading day falls on November 11.
If we have a strong follow through day between Nov 4 and Nov 11 with above average volume, the reversal day will be confirmed, and, according to Mr O’Neil, a bull market may well have started.

My Notes: I have not done any research on such inflection points. The base building process is my signal, that will take its own time.

11 comments:

s.k said...

Dear Mr. Sukhani,For the time being 2252 may be a temporary bottom and an inflection point,but dont you think important bottoms/pivots need to be tested within a 3-5% mark?In other words we should see2350 nifty before3350

B M Kajaria said...

This is an eye opener to the world and if it proves correct than it is healthy for the market

Anant said...

Dear Sudarshanji,

Actually this comment is not fit in reply to your article on Starting of bull market; however I came across this article just now and would like to share.

Following is part of an article having link as - http://www.hussmanfunds.com/wmc/wmc080211.htm

This was published on February 11th, 2008; however phenomenon repeats by itself again and again. Following lines reproduced from above stated link written by Mr. John P. Hussman, Phd. during April 2000; holds good even in 2008.

QUOTE
......This is a good time to review what bear markets look like, because even though our own focus is always on the prevailing Market Climate, an understanding of how such market periods evolve can be helpful in riding one out. As I wrote in April 2000, bear market psychology typically evolves something like this:

"This is my retirement money. I can't afford to be out of the market anymore!"

"I don't care about the price, just get me in!!"

"It's a healthy correction"

"See, it's already coming back, better buy more before the new highs"

"Alright, a retest. Add to the position - buy the dip"

"What a great move! Am I a genius or what?"

"Uh oh, another selloff. Well, we're probably close to a bottom"

"New low? What's going on?!!"

"Alright, it's too late to sell here, I'll get out on the next rally"

"Hey!! It's coming back. Glad that's over!"

"Another new low. But how much lower can it go?"

"No, really, how much lower can it go?"

"Good Grief! How much lower can it go?!?"

"There's no way I'll ever make this back!"

"This is my retirement money. I can't afford to be in the market anymore!"

"I don't care about the price, just get me out!!"

......Every $100 has collapsed to $20. If it could happen to them, it could still happen to you. This is too risky. After all, you think, "I can't afford to keep my life savings in the stock market."

"Better safe than sorry" is your motto........

UNQUOTE

The cautious words, expressions are comparable to those expressed by your good self.

P.S. - I have read reprint policy and above reproduction of part of artocle shall not violate reprint policy.

ashu said...

Sir,

1. A BULL Mkt is born in despair, it breaks out in skepticism, matures in optimism and dies in euphoria...



2. Look at the last time the NIFTY went from 2200 (roughly) to 2900-3000. About three months? Look at it this time... Three days?

Need I say more on Time compression?


:)

Jagdish said...

Dear Sir,
I totally disagree with the CANSLIM approach being a final bottom. We saw a similiar pattern as we just saw last week happening from July 17 onwards with the nifty rallying from 3800 to 4650. What happened thereafter is known to everyone.
I agree with your view that there has to be base building and with fundamentals being negative throughout the world, the market has no other option but to build bases and spend time therein.
Thanks for the wonderful job you have done by this blog. Keep it up

MVP said...

dear Mr.Sukhani,
i am an admirer of your truthful analysis and views. the latest post shows a bit of over optimism as the worse is yet to come. as another visitor here has pointed out, we have to go back to lower levels once or atleast near the already made low. the time is just not right for start of the next bull run now.
regards//mvp

pinakin said...

sir that is great effort provided by u by seeing such seenario market we eagerly waiting for M of canslim so if proven we ve to see volume and moove the rally already been a strong so wait for further downfall which may lead in 10th day and market look weaken so waiting for that buy the stock which ll' not make new low at that time.wishing u and all viewer happy diwali and prosporeous new year. Pinakinmedhat@yahoo.com

Nitin said...

I dont agree. This is nothing but a suckers rally. Main theme is "US Elections" and nothing beyond this.

Next week will be quite intresting. Watch it, we will be hitting 1500 Nifty by end of November/ early December.

Sandip said...

I have read somewhere that.. bear market probably reaches around its bottom when even every bulls turn to bears and there is extreme sense of pessimism. I really do not know whether we had hit the bottom or not, but one thing is for sure that with the last pace of fall in market has started the phenomenon of turning bulls in to bears. Afterall stock market is all about sentiments weighing heavy on fundamentals most of the times, be it a bull run or it a bear phase.

Raj said...

dear mr sukhani
it is a pleasure to find your blog showng positivity...

my guess is that we are now moving into a uptrend. The rbi has also cut rates and i am hoping that there will be a fuel cut soon.

my guess is that we will hit 3300 soon

Saurabh said...

thanks for your support.