How Will The Bear Market Saga Unfold? Its worst out there.

Bear markets are full of confusion. What will be the bottom? When will it will form? Questions like this are doing rounds in almost all forums. There are many who are providing answers to this and many who follow. The important thing is to understand "why" of the level or the date predicted. I am also confused ( bound to be s this is my first bear market experience) and so I did some analysis on this. I may be wrong by 100 odd points here and there and similarly for the date, a couple of days here and there. Please take this analysis as a sincere effort to understand and predict future action on stock markets and not as a something which is certain. I can assure you of that it will surely follow the broader course of action predicted.

In the chart shown below, it is evident that Nifty is in a downward channel. I had shown this quite early when the whole world was hell bound on 5000 and above levels in How Will The Bear Market Saga Unfold? Markets have been religiously following it since then and will continue to do so for sometime.

Now for some technical analysis ( actually I feel it is more of logical reasoning). We are almost at the end of the downward channel and here is the important part. If some level has to form an intermediate bottom, it is important that it is tested as seen in last intermediate bottom of 3790. This means that coming few days it will be very volatile. Nifty VIX is currently at 39.30, however to form a bottom it should ideally be somewhere around 50 or above which is due. The levels I have got from 360 degree analysis for an intermediate bottom are 3332,3315,3293 and 3255. I am proceeding with the worst case scenario. After forming such bottom Nifty should correct ( meaning rise ) to around 4000 levels. 4000 odd levels should be the level at which new shorting activity should take place and which will give 1000 odd points. Slow stoch and RSi also indicate formation of intermediate bottom. So guys this will be another chance to get rid of long position or it will be only pain.

Some basis for my analysis ( and mind you this is indicative and not firm for the predicted values or date) which will be updated as time passes

Here is some interesting statistics for you. It is now very clear that Us and other developed countries indulged in some big time profit making without caring a lot about good practices. The basic problem is that US financial institution developed some exotic instruments called CDS or Credit Default Swaps. Wikipedia explains it as below
"A credit default swap (CDS) is a contract in which a buyer pays a series of payments to a seller, and in exchange receives the right to a payoff if a credit instrument goes into default or on the occurrence of a specified credit event, for example bankruptcy or restructuring. The associated instrument does not need to be associated with the buyer or the seller of this contract."

This instrument was something which US financial industry thought was the best way to make money and that too big time. The reason that US is in turmoil because everyone thought that housing market would always rise and they kept on increasing the exposure. Unfortunately because of slowdown in growth the housing markets crashed and this was followed with payments related to CDS. Just to give a ballpark figure, Bank for International Settlements has figure of approx 60 Trillion of outstanding CDS contracts. Just imagine 700 Billion compared to 60 Trillion or 60,000 Billion. It is impossible to clear this mess. Any amount of co-ordinated attempt will not be successful. AIG is one such behemoth where this is taking a toll. God save the Americans and other developed nations whre this has been followed. Unfortunately the FII's( american one) are now short of capital and they will take it out from where they can. China is down alomost 70% from 52 week highs and India is only 40% odd. I don't think Chinese economy is doing bad and neither are we. If China can go down 70% so can we.

I am not trying to scare but telling the truth which is hidden from us by the Business channels which only shows rosy pictures. Think on this and speculate where we can reach. 2000 for Nifty. Does it look probable now?

Bear's Ferocity

Bears are known for their ferocious attacks. Every trader should keep that in mind and give due respect. It is for this reason that the bear rallies and downward journies are real fast giving no time. I have been pretty busy since last few months and have been just managing to update the daily levels which are shown on the blog.

I had a chance to go through some of the blogs in the "Morning Dose" and forums I visit and I came back surprised. People seem to be in perennial hope of revival of Bull run. This is also very common in my office. This motivates me to quote some gyan on Bear markets once again

"bears are exceedingly dangerous environments for investors. Fools ignore bears at their own great peril, and even the prudent are filled with plenty of trepidation. For the most part, you can't merely weather a bear by buying the best-of-breed companies. They will get sucked into the selling too. Other than sitting in cash, the only viable strategy for surviving, even thriving, in bears is actively trading these merciless beasts. "

"The key to successfully trading bear markets is understanding their primary driver, sentiment. The mission of a bear is to gradually hammer on investors until their perceptions of stocks radically change. When a bear begins, optimism and greed abound and traders are far too complacent. But by the time the bear ends, all hope has been beaten away. Pessimism and fear remain and traders are totally demoralized. "

"To trade a bear, traders have to carefully monitor popular sentiment. And then when it gets to an extreme, they must do the opposite of what mainstream market thought considers right. When the thundering herd is scared, traders want to go long and buy stocks. When the herd is greedy or complacent, traders want to go short and sell stocks. Contrarian trading within bears is dazzlingly effective. "

Enough of gyan but let me give you some levels which I have been persistent since I posted How Will The Bear Market Saga Unfold?  on August 8th.

Check for yourself, how the markets have stopped, took a breather and resumed its downward journey

Levels to take note of


"4577.53 4558.30 4539.07 4500.60 4462.13 4442.90 4423.67 4385.20 4346.73 4327.50 4308.27 4269.80 4231.33 4212.10 4192.87 4154.40 4115.93 4096.70 4077.47 4039.00 4000.53 3981.30 3962.07 3923.60 3885.13 3865.90 3846.67 3808.20 3769.73 3750.50 3731.27 3692.80 3654.33 3635.10 3615.87 3577.40 3538.93 3519.70 3500.47 3462.00 3423.53 3404.30 3385.07 3346.60 3308.13 3288.90 3269.67 3231.20"

Figures in red are all done and the rest yet to be completed. The last one in red being todays low.


“ Market Timing is a wicked idea. Don’t try it ever.” -Ellis, Charles D.




“ There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor –the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.” -Bernstein, William.