Saturday, October 25, 2008

This Bear Market is Different

In the good old days, analysts came on CNBC and said "this bull market will last forever, this time it is different". I was always afraid of this bullish explanation - "it is different." It never was different - greed was in control everytime there were bull market excesses.

Now, ten weeks into the relentless selling that is going on, I sometimes think - "this bear market is different".

There are no rallies, no pullbacks, just selling. The Nikkei falls 11% because Sony disappoints. India falls 14% because the Nikkei falls. Europe falls because Asia falls, S&P futures are locked in a limit on Globex, then surprise ! - the Dow and S&P lose just 4% each, while the rest of the world loses 8% to 14%.
On Friday, so called 'Black Friday' - I thought, the Nifty is at 2500, very close to a strong support base between 1800 and 2500. On CNBC, I said at 3:15 PM, - "those with spare money not required for next five years may like to invest 5 percent in the market"

First, a word of explanation. I practise very conservative asset allocation. From July 2007 onwards, my allocation for equities was cut slowly till it became 30% of total portfolio. Therefore, I do feel financial pain, but the pain is probably manageable.

Now about this bear market. A 400 point decline (Nifty not Sensex) appears to be 'irrational pessimism.' That was my first reaction.

After a restless night, I am not so sure.

What is 'Deleveraging' ? How will the world wide credit crisis affect us ? How much impact will a world wide recession have on India ? What happens if 'hot money' continues to flee ?

Finally, let us face it, the middle class investor is devastated. Rs 100/- has become Rs 20/-. The first time investor has lost all her capital, therefore, will not re-enter this market for the next five years.

Then, there are fundamental changes in world economic and social order. Nationalisation is again in favor. Croney capitalism (crooked capitalists in alliance with the powerful!) has caused worldwide havoc. How much damage has been done ? Will a repair job swing the other way - too much control ?

Now for the good part. If you note, almost all the issues I have outlined relate to financial engineering. This bull market was created by financials, and, the bear market will see the end of financial services as we know them. That's fine. Maybe, the economic order is resilent, manufacturing and services are fine, and will grow once the system is purged of these horrible financial wizards.

So, what is the answer ?
Er.. what was the question ?

The Question could be: when will this bear market be over ? The answer should be: The Nifty is now at levels where it will find significant chart support. There is a lot of support between 1800 and 2500. This means that we may be see the end of this leg of the bear market between 1800 and 2500. This process may take its own time, but there will be many opportunities for investors in the near future.

7 comments:

tushar said...

I think predictions are better left to the market.
Let market do what it wants we will just follow.
Currently trend is down and this every tom dick and harry knows.

Supports are not holding. So the wiser thing to do is short the markets on pullbacks till proved wrong.
The people who are trying to predict the bottom now and then are losing there money all the way.
And CNBC specially udayan i hear every time market falls they say "how much more will it fall you may buy now" since janurary.
This is wrong.
Sudershanji clearly pointed out that there is no support till 2000 since long.
Now also 2000 hasn't been tested.
Let it go there test it if it passes the test then buy else look for next major support to test.

rajivhtc said...

namaskar sudarshan ji,

excellent and crisp analysis as usual. but how do we recover our lost capital now ? do we go long ? do we go long via nifty directly or through call options? which shares and sectors will be the sure shot winners now ?
your guidance will be of immense help and value.
warm regards
rajiv malik

Vinod said...

I think this BEAR MARKET should teach our Government some hard lessons. WHY DIDNT THEY PLAN TO CREATE A LOCAL BULL by giving the tax payers exemptions on investing in MF to the tune of 5 lacs instead of 1 lac ???? and where is the FINANCIAL CRISIS MGMT team ...sleeping as investors lose in lacs everyday ...Its a pity that the so called INTELLIGENT FM is advisinf investors to be calms and confident and watch theirs wealth go down by 10 to 50 % everyday ....thats called the CONFIDENT INDIAN INVESTOR

Manish Chauhan said...

Well said Sudarshan ... I totally agree .. This kind of reaction from Indian Markets are "over reaction" .. Things are bad , but not so much that people abuse our shares to such an extent by selling and only selling to such extent .

There are more good news on local front than bad , but still markets have broken so low levels which was unimaginable .

I am the first time investor in this market , that to directly in Options , but i have not lost hope ... i understand that our market success can be "delayed" but cant be "denied" .

Though , i have lost heavily in this bear market , still i am gonna stick and still fight .

Manish
http://finance-and-investing.blogspot.com/

krunal said...

i think i have never seen so oversold (technically) markets ever!!
the bounce is expected, but wot i dont agree is to allocate ne amount of asset in equities in genral (stock specific there may be good cases) if u r an investor the best place to invest right now wud be banks!! giving u an intrest of more then 10% !!!

the big question for me not if this bear market is over? but if this conny capitalism is gonna die by deflation or hyperinflation?? coz die it'll i have no second thoughts on it.

it looks like deflation is taking its grip but, i trust our idotic policy makers to pump an liquidity tsunami as they did in 2001 putting MZM ration all the way to 150% annualized. so once this leg of selling climax gets over & the 2 big auctions of the cds market get over commodities sud make an roaring comebak.

let's see we r in uncharted territory either CASH or GOLD will emerge as the next king

ashu said...

Greetings Mr. Sukhani,

It was, as always, a pleasure reading your article on this bear mkt is different...

I have done a bit of homework and would like to share some points with you...


The mkt has definitely done what a trending mkt is supposed to do... there is no question about that...


About things being different, I agree with you and also disagree with you.

I take some inspiration from the pasts of two very heavily traded/respected charts...The DOW and the NIFTY FUT.


If you have a look at the Monthly Chart of the DJIA between 1971 upto 1982... it will be a hair raising experience I'm sure for any student or practitioner of the science.



The Monthly Chart of the Dow can literally be almost superimposed on the Weekly chart of the NIFTY FUT from 2000-2003. It is almost the same, given allowances that one normally does in this science.


This means that the kind of behaviour that the Dow exhibited was done by the NIFTY around two decades later...


So why are things DIFFERENT?

Well... because if one notices carefully, the behaviour of the Dow was on the Monthly timeframe and that of the NIFTY was on the Weekly. The Dow took 10 years whereas that of the NIFTY took around 3 years.


What I am trying to arrive at is that there is an element of time compression today which most observers are not willing to look at or have overlooked completely. If all human activity, be it cooking or cleaning right upto travelling, has undergone very serious time compression, why not trading??

Coming to the present,

Either one takes the place of the Almighty and knows that 2513 was the bottom. Then I stand no chance ever in front of such a person. Or, let the market tell you that "I have bottomed out and I sayeth so from my chart" and then a lesser mortal like myself shall rush into press the BUY button...


A wise old sage said, "The more things change, the more they remain the same..." I think it is very true especially for markets...


Till then, we need to painfully hear tens of thousands of words where a simple OHLC picture may suffice, thanks to the media, about the tic-by-tic picture of the bottom and where it is was or should have been...! Thank God for the mute button on my TV remote...! I think the market was quite upset with the analysis overkill that it decided to put all the neo-analysts and "finance channels' broadcasting "professionals" " knocked out for a while!


The greats like Paul Tudor Jones will, no doubt be amused, to say the least, when those that should never be in the business of analysis, are looking for reasons for the rise and fall whereas this certainly amuses the pure technician who trusts price and price alone...!

This also prompts me to ask myself one more question.... what or who defines a BULL/BEAR Market...? If I trade just the ten minute chart of a particular security, then, need I be bothered about the change of swing on its Weekly timeframe?

Or if I live life on a Weekly perspective, should I be bothered by the ten minute changes in swing and the supports and resistances there?

This, however seems to be a very long and subjective topic and I guess I should, probably someday, look forward to interacting with you on this!!

I take this opportunity to wish you, Mr. Sukhani, a very happy Diwali and a prosperous New Year. May God Bless you in all your endeavours.


I look forward to reading more of your thoughts soon.


Warm Regards

sourav said...

SUKHANI JI,WISH YOU A VERY HAPPY DIWALI 2008,
WHAT A YEAR IT HAS BEEN!!!!A DREAMING BULL MARKLET AND A CARNAGE OF THE BEAR MARKET WE ARE GOING IN.SIR AS YOU HAVE SAID THE MARKET IS HAVING A STRONG SUPPORT AT 2000 NIFTY,MAY I PLEASE KNOW,ARE WE HEADING FOR THE BOTTOM??ITS A MILLION DOLLAR QUESTION NOW FOR MANY PERSONS LIKE ME.SIR,AS PER ME THE MARKET SHOULD BOTTOM AT 2095 NIFTY AS IT IS 67% RETRACMENT FROM 6357,AS THE LAST BEAR MARKET SAW 67% RETRACMENT AS WELL AS IT TOUCHES THE BOTTOM OF SECOND WAVE OF 5 WAVE OF THE BULL RUN FROM 920 TO 6357 NIFTY?SIR AM I RIGHT IN THE STUDY?
WITH THANKS.