Tuesday, January 10, 2012

How does a bear market end?

We are in a bear market. This is evident even after today's rally which took the Nifty to 4850. At some point of time, this bear market will come to an end. We just do not know when it will end, and, at what price levels.

What will be the indications that the end of the bear market is close by?

First, the nifty should start making higher lows, and close above the nearest intermediate top. The intermediate top is 5100.

Second, at least some of the blue chips should exhibit bullish reversal patterns on their charts. This has not yet come about.

Third, there must be a general feeling of disinterest and aversion to the stock market. I think we are close by.

Fourth, the final phase of the bear market is marked by significant declines in the value of blue chips. This occurs because investors who wish to raise money by selling their shares a forced to sell blue chips since there are no buyers for the small cap and mid cap stocks. This position has not come about.

Summary: while I could easily be wrong in my analysis, it appears that the current scenario does not confirm the end of the bear market.

5 comments:

Jiignesh said...

You are right this is bear market and how does a bear market end is big question but is there any option on chart to find it? I mean some monthly MA, or golden cross, or anythink

AimNifty said...

Sir,

Very well described.

Meshach. M said...

Sudharshan your views complement the fact that our indian markets have a PE cycle of between 12 and 25 (Nifty current PE) s&P i read has a 10 - 20 cycle. We are downswinging after hiting 25 in sep 2010 and since then the mkts have been declining with the PE also declining. This should ideally stop at around 11 - 12 in panic, now @ 17.56. for it to hit 11 - 12 two things can happen either earnings picks up while mkt stays in a range or the more possible scenario of further price decline coupled with earnings improvement. In such a case i initially thought (in Feb 2011) we may bottom at around 3600 - 3900 but with earnings still deteriorating and PE abv 17.6, we might have much more downside in the index....
http://www.swingtradereporter.in/2/post/2011/02/nifty-pe-current-what-does-it-poit-to.html

Technotrader said...

I agree with you to large extent. In the present rally Midcaps are running ahead of large caps in % terms as this should reverse if the market has to turn around. I assume that may be the bear market is nearing its end but may take another 3 to 6 months at least.

Nilesh Deshpande said...

Sir,

Today was again a NR7 (if you discount Saturday's truncated session). Also the Dollar Index has broken past its resistance of 81.60.

If I am following you correctly, a big move on the downside can be expected from here.

Am I right in my interpretation?

N L Deshpande