Aug 222011

Followers of this blog would know that I had been stubbornly insisting that the level of 4800-4700 on the Nifty has to come through before we could even talk about upside potential for the Indian markets. Having reached those levels on Friday, what next for the Indian markets?

In my June 14th post, we discussed the bullish and bearish possibilities for the NSE Nifty and had mentioned that the path shown for the bearish case was the bare minimum outcome. So if the bare minimum was 4800 Nifty, how much more can the Nifty head down? Now for the record, I was probably the only one who spoke about India having entered a bear market and the 2009 lows of Nifty being at risk as early as January 2011 and some of my friends in the media tell me the worst  they have heard so far is 4200 Nifty ( you might want to read here, here and here).

So what is the basis for 2009 lows? It is the BIG PICTURE on the Nifty.

Nifty - Monthly Charts

The chart above shows the monthly movements of Nifty since 1995. Let me keep this simple without labouring too much into technical jargon. The charts are telling us that the Indian markets are probably still correcting the steep rise from 2003 to 2008 and the potential to revisit the lows of 2009 is still out there. Now slightly technical - Elliott Wave guidelines states that Waves 2 and 4 tends to alternate and since Wave 2 Circle was a zig-zag, the potential for wave 4 Circle to be a flat corrections is quite distinct.

Of course there are other possibilities (like Wave 4 circle ending up as a triangle) but given that we have highlighted in our August 4th post that the global markets are in a bear market, I see this as the preferred path. Of course, we will be flexible and listen to Mr Market if we see signs pointing in the other direction. We can expect the best from the markets but one has be prepared for the worst. So, do not be too early build a portfolio looking at the sharp fall in price.  Remember, that market bottom formation is NOT an EVENT, it is a process. Even if this view turns out to be wrong, we will end up buying the market say 2-4% higher than the big low registered. That I think is a fantastic insurance, given that the other scenario presents a market drop way way below current levels.

And for heaven sakes - do not think about QE3 coming in and changing the direction of the markets. Here is a little peek into what happened after QE2:

QE2 was announced on Nov 3rd, within days three of the indices from BRIC countries peaked (India, China and Brazil) and so did the Hang Seng Index, Singapore STI and Colombia Index. Within in a month of QE2 many frontier markets peaked. So, we are better off keeping track of the trend rather than the noise of news.

  31 Responses to “What next after 4800 Nifty?”

  1. hello sir
    very interesting article

  2. Sir,
    Nice information and a word of caution, it will help investors from getting in to a ‘Trap’
    Keep informing in details as your subscription is not open to new investors.
    Dr. Vasant Bele

  3. Dear Dr Vasant Bele,

    Will definitely keep the updates on Nifty coming.

    Best regards,

  4. I consider this as a caution board placed before a long free way!!!

    • That is correct. It does not mean there will not rebound but we have look at those bounces with skeptical eyes.

      All the best,

  5. Jai,

    Great post. If my memory serves me right, only you and Mr Sudarshan Sukhani have been absolutely spot on about the 4800 and may be 4200 on the Nifty. Great call


  6. Hi Jai,

    At the outset, let me state that you have inspired me to take up technical analysis as a study, thank you! I am still new to it. As for the chart above, I have a difference of opinion – according to the elliot theory: doesnt wave C go below the end of Wave A? Hence shouldnt C end below 2500 levels (end of wave A) on the Nifty?
    In my view, narrowing things down slightly, there is a possibility that the 2008 correction saw one cycle of the elliot wave completed. And IF 2009 onwards is a second elliot wave – then the present correction from Nov 2010 high till date would be the last corrective phase (in a double zig zag pattern). Next stop could well be a new all time high.

    • Hi Ranjeet,

      Thanks. I must say that is quick grasp on EW 🙂 for someone who is new. You are right, C should go below A (2539). It is not properly visible on the charts. Yes, new all time high after that, but I do not want any distraction from the Long term view now. One who preserves capital now, can uproot the shop during the basement sale 🙂

      Good trading to you,

  7. Hi,

    Correspondingly, what would it be like for the US and European markets?
    And what would it mean for the precious metals?
    Basically for most asset classes…


    • Agile,
      No asset class is likely to be spared. Remember this is probably phase II of 2008 and bullion is yet to join.


  8. Hi,a top tech guy expects nifty to make a temporary bottom betw 4538 4786 (probably upper end of range)over nxt few days and stage a 10%+ rally over nxt 4to8 wks..just a temporary bottom in a long term bear mkt..even u had predicted a possibility of a durable counter trend rally once nifty reaches 4700 4800..any view on this trade?

  9. @rishabh ..pls dont judge jai who is a master of his art with sukhani who keeps on changing his view on daily/hrly basis ..sukhani today morning preopening gave a buy in nifty then changed his view since mkts cld not hold on to early gains and said he is short and now when he comes back at 2.3 he will b long since mkts have gone up..

  10. hello sir
    i trade forex and eurusd trading in a this type of market how to avoid whipsaws

    • Zubair,

      Just step aside for a while. All traders make mistakes, great traders, however, limit the damage.


  11. thanks in advance

  12. @Rajesh: Trust you are grown up enough to appreciate someone’s views and lets not start off with a personal bashing here or X vs Y. Nobody is correct all the time and “I still maintain what I said before”.

    Trust me, I don’t need your advice to form my opinion. and Yes, Jai is pretty good at his analysis but lets not demean anybody.

    If u think someone if not worth watching, then don’t even listen to him and tell others that “X changed his view or something like that” Why did u even watch 🙂


  13. @Rajesh: yes, from your earlier post, I guess, you follow “n” no. of technical analysts. For eg: “A top technical analyst” et al.
    Do let us know whom do u find the best 🙂 and hope u make some money by following all the “Gurus” 🙂

    Happy trading

    • Rishabh/Rajesh,

      As far as possible, we should try and avoid discussing an individual. Let us not make the comments section here a slugfest. However, I do not mind you guys asking my opinion on an opinion expressed by others. We can always agree or disagree. Take it easy guys.

      Good Luck with your trading,

  14. Hi Jai

    A good and informative post for wannabe investors like me.I would like to ask you that now everywhere we can hear that we should invest in sip way.Do you think it is apt time to start investing or do u think we could get still better prices.


    • Hi Mahesh,

      SIP, if I have got it right, is like Rupee cost averaging. I think you would be better off in short term fixed deposits, until the market bottoms and at the same time money works +ve in FD as opposed to equities working -ve while you are averaging. You are also ready in case markets do form a bottom and your capital would have increased.
      I’m no investment advisor but this is my opinion based on my market view and limited understanding of SIP.

      I raised this point when I was talking to UTV Bloomberg anchors yday, it might be useful for investors like you. When a market drops 10%, you need 11% to breakeven, when it drops 25%, you need 33% to breakeven and so on.. AND AFTER THAT ONLY you can start thinking about profits. How tough is that?
      Cash is King, and the 1 who has cash right at the bottom is the emperor 🙂

      All the best,

  15. Thanks Jai. CAMssss 🙂

    P.S. – CAM (Couldn’t agree more)


  16. hello sir
    thank you once more

  17. Dear Jai,

    Do you see BANKNIFTY going above 10000 levels in this pull-back rally? Reason why I ask is, I’m long since 9800 & have 2 options, either to get out at 9600 or ride the possible rally till 10000.

    Any suggestions?

    Thanks & Regards – Parag

    • Parag,

      This counter-trend bounce for Banknifty will face resistance at 10020 but it is difficult to say if it will get there before another new low or first there before a new low. At the moment, price says it is exhausted but momentum says I will go down. So its a tough call. Keep a tight stop or hedge.

      All the best,

  18. hello sir
    any targets on gold shorted at 1879.

    • Over 2/3rd probability that this might be THE reversal. Can even drop to 1470. Good luck 
      Best regards,

  19. thank your sir.

  20. Dear Bala

    u should accept paid subscription , i am following you since last october ,i recall only one instance where i thought you almost throwed in the towel(i felt so ), otherwise you have been most consistent on your bearish view among all the analyst community

    you rock man ,keep it up

    • Hi Vijay,

      Thanks for the kind words. If I do restart paid services, I will let you know.

      Many thanks,

  21. Jai : kudos for the great job…. i had shorted the markets at 5581 levels when the dail macd cross over had happened. However due to the magnitude of the fall and the momentum, i had closed my positions when Nifty had reached 5200 and have been out of the markets since. I have gone short again at 5131 and i am holding the shorts right now. Where do you see the next support in the market.

    I never watch CNBC TV18 because i feel that analysts there never stick to the view they have and change them every few hours. You are the only guy who stood steadfast on his belief.. job well done

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