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 -
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.
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- |
| 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.
BigGains !!
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