NOT BEAR MARKET IT IS BEAR PHASE OF LONG TERM BULL MARKET

The Nifty/Sensex monthly chart highlights the long term trendline commencing from the May 2003
days. On the Nifty, the May 2004, June 2006 and the recent January‐March falls have been supported by
this trendline signifying its importance. While on the Sensex, the May 2004, June 2006 earlier falls have
been held but the recent fall has seen the breach below this long term trendline.
The striking similarity in all three falls on both the indices is their magnitude which amounted to 30‐
32%. Assuming the recent bottom was formed on 22 January on the Nifty at 4448 level and the 14677 on
the Sensex on 18 March, the fall from the lifetime high at 21206/6357 amounts to 30%.
The recent fall has been painful in terms of price (shed 30%) as well as time as it commenced in the
month of January. The fall has affected almost all the sectoral indices, while some of the stocks from the
mid cap and small cap universe have shed 50‐70% from its peak.
On the quarterly charts, the month of March has displayed a long red candle; this has been preceded by
‘Three White Soldiers’ and can be considered as a phase of consolidation. As long as the next quarter
holds the low formed in the quarter ending March, we expect the uptrend to resume.
We expect a higher bottom/higher top to be formed by the indices and on a longer term basis, the
14500/4400 levels to serve as a bottom. Any sharp fall would only be a short term event, considering
the momentum in the daily and weekly indicators. We expect the indices to once again test the
21000/6200 levels within the next six‐eight months. This ensures that long term investors must view
the current levels and dips as buying opportunity in select frontliners and mid caps as the risk
reward is extremely favourable.
Typically, corrections beginning from the month of January terminate in the month of May creating a
long term bottom. Thus, we are likely to see another month of pain before reversal is seen. The 16700‐
18300/5000‐5300 levels will be the stiff resistances that the indices are likely to encounter incase of
reversal. Considering all the above charting developments, we conclude that:
• Despite the 6000 point crash in Sensex and the 1900 point crash in Nifty, there is no sign of a bear
market in Indian markets,
• The 4448/14677 levels are most likely to serve as a long term bottom and consolidation is likely to
continue at current levels until May.
• A higher bottom may be the first sign of reversal from the current pain.
Considering the longer term picture, the risk reward is favourable at current levels. We suggest going
long at lower supports levels of 15000‐15500/4500‐4600. We expect the indices to form a base around
May and thereon start a gradual recovery process. The slower the recovery, the more convincing it
will be in terms of stability and fewer fluctuations. Volumes and overall sectoral participation will be
the key elements to watch out for once the indices reverse trend. The 14000/4400 levels can be the
appropriate stop loss for all long term positions.