Sensex

Thursday, October 02, 2008

DG - Interesting Perspective - Comparison Between 2000 Bear Market & Current Situation

PART I - Bear Market 2000-2002: Replay in 2008

Global markets are in midst of a severe sell off. We are in a terrible bear market, and the question we need to ask - Is this the repeat of bear market of 2000-2002?

The answer is may be YES.

There is amazing similarity you can spot on charts between what is happening now and what happened in 2000-2002. The image below is the Nifty weekly chart of 2000-2002 period -

http://www.stateofthemarket.net/images/sep%203008-10.png

As you can see in the chart above, the 2000-2002 bear market was not only painful in terms of price correction but also time correction. Here are some facts -

  • Nifty peaked in Feb 2000
  • It then took 8 months for the market to slide to 200 week moving average. The price correction was 36% and it happened between Feb 2000 and October 2000.
  • The market then bounced back from 200 week moving average  - 20% bounce. This was Oct-Feb period - generally goo d p eriod of equities
  • The market then tumbled below 200 week moving average in March 2001.
  • The market sharply tumbled 30% on break below 200 week moving average.
  • Time Correction - It took 29 months for market to recover once market slipped below 200 week ma. It was a painful slow recovery.
  • Every rally below 200 week ma got arrested at 200 week ma during those 29 months of recovery.
  • The bull market resumed when market finally broke out above 200 week ma in August 2003. 

Ironically now, a similar story is getting played out in 2008. FYI - 200 week moving average = 3648. This level also coincides with 50% retracement of bull run from 920 to 6300.

PART II - Bear Market 2000-2002: Replay in 2008

Continued from Part I

Now lets look at weekly chart of Nifty in 2008; and try to spot similarities between what happened in 2000-2002 and what scenarios can play out now.

http://www.stateofthemarket.net/images/sep%203008-11.png

Let's compare 2000-2002 period with current period of 2008 and what scenarios can play out of it's the exact repeat of 2000-2002 period.

2000-2002 Bear Market

2008 bear market

Nifty peaked in Feb 2000

Nifty peaked in Jan 2008

It took 8 months for the market to slide to 200 week moving average (Feb 2000 to October 2000)

Nifty is about to touch 200 week ma and it's already 9 months (Jan 2008 - Sep 2008)

Price correction to 200 week ma from peak = 36%

Price correction to 200 week ma from peak = 42% (not reached to 200 week ma)

There was 20% bounce after market touched 200 week ma and it happened during Oct-Feb which is goo d p eriod of equities.

May Happen ...It means market may bounce from 3650 to 4500 levels in next 3-4 months...pre-election/seasonal rally

The market then tumbled below 200 week moving average in March 2001.

The next wave of correction may come in Feb-March 2009 just before elections and market can slip below 200 week ma

The market sharply tumbled 30% on break below 200 week moving average.

Quite possible during elections - Nifty can tumble 20 to 30% below 200 week ma

Time Correction - It took 29 months for market to recover once market slipped below 200 week ma. It was a painful slow recovery.

The real bear market painful period may come in 2009-2010 period and bull market may resume in 2011.

The bull market resumed when market finally broke out above 200 week ma

200 week ma can be a pivot point for next bull run

It means we may see a strong bounce in next 3-4 months before we see another sharp correction.

 

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Regards

BigGains !!
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