Is The Four Year Old Bull Market In India Losing Steam?
Kunal Saraogi, CFT
Markets are never the same but the trouble is that most investors expect them to be just as they were in the past. This faith in the market's inertia can be a risky assumption.
Equity markets in India just like most other emerging markets have had a dream run over the last few years. The BSE Sensex had risen a staggering 700% from the lows of mid 2003 when they made their all time high in December 2007. The secular bull market was unqestioned through most of this three and half year period. Despite being punctuated by sharp sell offs and periodic corrections hardly ever did people doubt the the bull market.
The present wave of correction that started in January this year and has affected markets across the world, however, has got a lot of analysts and investors to question whether or not the bull market is still on. With the US teetering on the verge of a recession and global liquidity evaporating faster than you could imagine most investors fear that the dream run for these growth economies may have already ended.
We must take a close and hard look at the BSE Sensex's chart to try and find an answer to this question. A quick glance at the chart reveals that the current rally is a stand out feature. It clearly is the longest and strongest bull market our markets have ever seen.
The current corrective started in the second week of January and has brought the index down by close to 23%. The big question staring us in the face is whether this is just another correction or is it something more meaningful. The start of a more longer term bear trend.
The trendline marked '4' in the chart above broke in the month of March 2008 indicating a pause in the primary uptrend that has continued without a break since 2003. This breakdown beyond a doubt is significant and is indicative of the weakening strength of the secular bull trend but does not by itself necessarily mean that the long term bull market is over.
So when will we know the bull market is over? Once the Sensex breaches 14200 on the downside. Till this level is taken out markets still are in an uptrend and must be dealt with accordingly. A general rule for trading bull markets is to buy every significant fall and be wary of selling short.
So stay put lighten your position and gear up for a jerky ride ahead. Long trem investors can continue to buy on panic days and wait this being a bull market. Short term traders should wait and watch and not do too much.
