Wednesday, December 31, 2008

>Nifty Outlook for First Quarter 2009

2008 would be an year which will be well remembered by investors in the Indian Market. An unprecedented fall of 65% from the peak achieved in Jan2008 would have ruined the portfolios of most market participants who did not recognize the Bear Market in time. As we end 2008, there is very little cheer for investors as we head into 2009.

2009 would in general be a repeat of 2008, as the price destruction has already been of a large magnitude, a repeat of 2008 price performance of the same order might not happen, although I believe that price fall in 2009 could also be large . The Bear market is likely to continue right through the Year in more or less the same fashion as in 2008. There have been several fundamental optimists who believe that the economy would bottom sometime later this year and are expecting a market bottom in the first quarter. The answer to this is simple, the bear market has very many months and quarters to go. I believe this would be the worst bear market that we might witness in living memory. Its quite likely that several investment methods and tools which have been usually been deployed to explain markets and its behavior over many years would get rewritten after this Bear Market is done.

The Silver lining for 2009, i believe would be a few counter trend bear market rallies which might offer good returns for whose who are nimble footed and can enter and exit market without any fundamental bias. In 2008 there were 3 major rallies March-April, July-Aug and Nov-Dec. All of these rallies produced about 22 to 25% return on the nifty. 2009 might offer more counter trend rallies than we saw in 2008, with a couple of them of a larger magnitude than we witnessed in 2008. I am not too sure if the bottom of this Bear Market is going to be produced in 2009.

As far as the First Quarter goes, its going to be a two way market, this is how i see the broad Trends in the first 3 months:

Jan1st-Middle Jan - Down

Mid Jan - End Jan- Up

End Jan-Mid Feb- Dn

Mid Feb - Early March- Up

Early March - 3rd Week March - Dn

3rd Week March - Early April - Up

On a rough calculation i find that the number of Up days and Down days are more or less the same in the period between Jan-March. However being a Bear Market, down tick produces larger swings than the uptick, would presume that there could be a net loss of 400-700 Points in this period. As the nifty is closer to 3000 as of date, i would presume that nifty should be trading in the 2300-2600 price zone as we end the first quarter. Of these swings, i estimate the first swing in Feb might probably be a bad one , sometime of a repeat of Nifty swing between 23/9/08 to 10/10/08.

The ability to trade the market turns correctly both ways would determine the returns you can produce in this period. The moot question is, in what range could the nifty trade in this period. The answer to this would depend on where the market lands up in the upswing from Mid Jan to End Jan. With current price Structure i would estimate a swing to 3250-3300 price zone. I was initially looking at a higher swing to 3800 by End Jan, however the price swing in Dec has been lower been lower than my expectations, it appears that downside swings are more prominent than the upside potential. The Upswing to End Jan might well be the last chance to exit investment positions, i presume this could be the high for 2009. The subsequent upswings are likely to produce lower tops.

There have been 2 Major Down pivots in 2008 - 2250 made on 27/10 and 2500 made on 20/11 and the up pivot at 3240 on 5/11. My estimate right now gives me a range of 3250-3300 on the upside and 2250-2500 on the downside. The potential for a break of 2250 would depend on the price behaviour in the month of Feb. I must add that the Nifty price structure on the weekly charts are not as good as its Asian Peers.

Would 2250 be the Bear Market lows as lot of optimists believe - This level would be broken sometime in the first half of 2008. It remains to be seen if this level would be broken in the first quarter, a lot depends on the price swing in Feb. If the price fall is somewhat of the same degree as it happened in Sept-Oct, it opens up the possibility of a major low in March.

How about the World Markets mainly the Dow - Dow made an important bottom on 29th (remember it made a top on 8/12) and is likely to rally till 3rd week of Jan. If you recall my earlier posts on this, i had a target of S&P 1000 for this pullback and i believe its likely to go there. Its dn till last week of march and i suspect newer lows might happen in that fall.

There is only caveat to this outlook - If there are any military disturbances in this period, the price performance might get affected during that period.

The only exception to the Bear Market in all asset classes is likely to be the yellow metal, i think it headed for a super cycle in 2009-2010.

As a final comment, i would add that comparisons between this bear market and the past ones are irrelevant. There is no symmetry with time, hence each bear market would have its own character and trying to make judgments based on the price patterns of the past can prove to be dangerous.


Deepak Narayanan

Writer is a trader who uses price-time geometry to analyze markets.

Comments invited...



Anonymous said...

my years long experience in technicals suggests that one should let the charts speak as they unfold,predicting future market moves in this fashion seems a little strange way of using any technical tools,,would love to see mr.deepak narayans comments before or atleast during jan-feb 2008.bjnaik 9925673239 ,

Unknown said...

Superb analysis and from exp of ur previous posts nifty is dancing on ur music. I got conclusion frm ur post that 2009 would be trading yr n i hope all active investor become trader in this yr so no operator can take benefit of thin volume

Wroodrah said...

pranam mr. narayan,

any address where i can read about your way of analysis, or previous posts...

will get a better hang of the picture...

thanks a lot,


Anonymous said...

Replies to the comments:
a)System i use is time based and does not rely on price. Price cannot be used for making foreacasts and price by itself is a derivative of time - patterns you see on price charts is a function of geometry resulting from time factors.
b) 2009 and 2010 are trading markets- Bear market is unlikely to end anytime sooner.
c)I dont post publicly as my system is proprietery and cannot be detailed. Hence is would seem as being arbitary in the forecasts.
d)Here are the next upmcoming pivots dates: 15/1 (L +/- 1day) and then 23/1 (H +/-1 Day). Mkt cud have a 3 to 4% pull back from a low on 13/1 but a sustainable uptrend wont happen until 15thlow pivot is done.
Mkt remaians range bound in the first quarter, there is a large dnswing due which cud either happen between 1/2 and 16/2 or 8/3 to 23/3.


Unknown said...

Hi Deepak,

Nice to see your views and can you please let us know how is the current trend and for the following month.

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