11500-11444 will continue to act as an intermediate support

Dow Jones (12361) : Intermediate trend : Sideways In the last review we said “Technically, the bulls are likely to stage a comeback, at least for the time being, if the critical area of 11500-11444 remains protected. “ The Dow scaled hefty 594 points since the last review. Further it has strengthened the short term positions, and now the slide is possible only if 12077 taken on close basis. As mentioned in the last review, 11500-11444 will continue to act as an intermediate support (stop) for the bulls. Before that 12077-11951 will continue to act as a strong support for the bulls. On the upside expect a target area of 12815-12841 in the next few days/weeks. The second fastest growing economy in the world has witnessed withdrawal of two “IPOs” due to adverse market conditions;Whereas the “recession” (?) hit US market has successfully completed (the record $15 billion) IPO of “Visa” which got listed with 36% premium.

The Bulls are Dead; Long Live the Bulls

Major Indices :: Sensex : 15289 :: Nifty : 4609 Intermediate Trend :: Bearish Key Technical Levels :: 15873- on the upside,14677- on the downside

“if at all, it comes to 12k, it can also come to 8.8k or even 6k”

In the last review we had stated,” the environment is full of distress, however, circumstances are likely to favor the bulls, provided they retaliate and close the week above 15690. Or on the downside, below 14809, the area to watch is 14163-14581. Anything below this will lead to a disastrous situation where the Sensex will be exposed to a low of 13779, formed on 17th August 2007.” In reality, the circumstances favored the bulls, though moderately, as the Sensex attempted to take 15690, but reached only 15465 and closed at 14994. Nevertheless, as blessing in disguise, it has not seen the worst i.e. fall below 14809. Prima facie, the downside is restricted. We may continue to think positive about the markets, in the next few trading sessions or till it nosedives in the critical area of 14163-14581(less likely scenario). However, the actions will be very limited and well guarded (preserving the capital and avoiding distraction). The bulls will have their “say” only when the falling channel (see chart) is broken on the upside. A close above yesterdays high i.e. 15351 is must to break this channel started from 18137(27 Feb). If surpassed, the next target will be the recent falling gap of 15873-16064. In nutshell, as mentioned in the last report, pending confirmation, we are near to the bottom, at least for the time being. This statement will loose validity if we see wkly close below 14677.

Since the start of the bull run in May 03, the Sensex has touched the baseline (see chart) near the month of May, every year. Apart from that, it has also witnessed a “sell off” of nearly 30-32% every alternate year (2004, 2006 and now 2008). Interestingly, all these falls were violent in nature and in spite of extremely negative sentiments, “doom” public opinion; the Sensex has invariably scaled to the new high subsequently. Although history has repeated, once again, with so far 30% fall; the outcome could be entirely different. The reason behind this divergent opinion is “breaking” of the base in this month. It is feasible to have a strong comeback from the present fall, but the gravity, depth & “time” factors will be no longer similar to the previous rallies occurred post 30% crash, due to the “damage” to the base line. So now onwards, the road for the recovery will be different. And the biggest damaging factor will be recovery in “small cap and midcap stocks”. Prima facie, the recovery in small cap and second rung stocks looks doubtful. As such, in the next rally (corrective or continuation of the bullish trend) these stocks will not participate at all or may witness a continuous bear hammering on every rise, making recovery difficult. So within the overall long term bullish trend in the Sensex, we may have a negative trend or a bear market in certain category of the stocks in the near future. Hence the Headline……

Revival, at least for the time being, in one of the weakest market in the world.

Nikkei 225 (11787) : Intermediate trend : Bearish The weakest market in the world, as far as large economies are concerned. Nikkei has made a top at 18300 on 26th Feb 07, i.e. more than 12 months back. Since then it is falling slowing but decisively. Time wise it is full 7 months ahead of Dow, which has topped only in the month of Oct 07. While concluding a 13 years bear market (Since 1990-2003), the Nikkei made a low of 7603 in Apr 03. Subsequently it has climbed to the recent high of 18300 (Feb 07) and started its decline. Yesterday, it has made a low of 11691, which is exactly on 0.618% retracement of the entire rise from Apr 03 to Feb 07. Technically, 0.618 is the “golden” ratio, and if the fall is arrested, in couple of weeks, near about 11400-600 levels, we may see a revival, at least for the time being, in one of the weakest market in the world.

It may not fall in straight line

Dow Jones (11951) : Intermediate trend : Bearish The Dow is in a “fractured” condition. The call to be taken is a) It will not fall much from here and will recover slowly, b) The worst is yet to come. Technically, as of now, the chart suggests both scenarios are possible, but the “time” is the most important element hereafter. The Dow made a top at 14279 on 11th Oct 2007. Since then it has fallen to 11508 on 22nd Jan 08, (Sensex low 15332), the level which is quite close to the previous top made by the Dow in the year 2000. Till date, it’s trading above this low & struggling. Technically, the bulls are likely to stage a comeback, at least for the time being, if the critical area of 11500-11444 remains protected. This observation proves point “a” mentioned above. Just after making a top in Jan 2000, the Dow started a 33 month long bear market. But after losing 19% in the initial 2 months, it went into treacherous 19 months long sideways trading in the range of 11300-9800, before finally breaking downward on the back of 9/11 terrorist attack. (See the box (purple color) marked on the monthly chart). Now, even if the Dow has slipped into the long bearish faze- which itself is the most important question/point of debate for the entire world - it may not fall in straight line, here after, because the magnitude of the current fall is also 19% from the recent top.

Think Bullish, but act circumspectly!

Major Indices :: Sensex : 14809 :: Nifty : 4503 Intermediate Trend :: Bearish Key Technical Levels :: 15690- on the upside : 14581- on the downside In the last review we have stated, expect a fierce battle between the wide ranges of 15100-166250; and especially 16250-16754 area in the Sensex will provide an ideal battle ground for bulls and bears. We have seen 16683 on the Sensex; and also the surrender of the bulls. Eventually the Sensex also breached our support levels of 15063, yesterday. What next? The environment is full of distress. For the bears it’s an easy walk, no brain; just see what the Nikkei and HangSeng is doing and just go short. One can see money flowing easily in the bear’s camp. Circumstances are likely to favor the bulls, provided they retaliate and close the week (short week of only 3 trading sessions) above 15690, best case scenario a weekly close within/above the following gap area of 15873-16064 (see cha On the downside, below the current close of 14809, the area to watch is 14163-14581. Anything below this will lead to a disastrous situation where the Sensex will be exposed to a low of 13779, formed on 17th August 2007. This could be a worst case scenario for the Indian equities (as an asset class), ever after the Sensex has formed cyclical bottom of 2904 on April 2003.In short, for the bulls, it’s not only a testing time, but also a question of survival.

Fierce battle between 15100-16250

Major Indices :: Sensex : 15923 ::Nifty : 4800 Intermediate Trend :: Bearish Key Technical Levels :: 16253- on the upside ::15173- on the downside The intermediate downtrend started in the Sensex from the recent high (21206) is ‘still’ intact. Since 10th January, i.e. in the last 9 weeks, the Sensex has lost 5900 points i.e. almost 28%. However, as discussed in the last report, it’s a usual affair for the Sensex to shed around 30% of the value, form its previous top, in the month of March/ May, for the last 2 years. Will it be different this time? One of the most basic assumptions of technical analysis is that “the market discounts everything well in advance”. The market (prices) moves well ahead of any news or event, rather than following it. The reason behind the recent fall (as claimed by media and various market participants) is “recession in US”. If you observe minutely, the Dow has fallen 17.5% in the last 5 months (top made in Oct 07), whereas Indian equities had gone overboard and fell 28% that too in just 9 weeks. Now it is quite possible that, the Sensex, being already discounted (further) the bad news/negative clues, now will stabilize here for few weeks, before making a fresh comeback. The markets make a “top” when there is an excessive euphoria in the system, coupled with complacent attitude. (How come a highly capital intensive business likes “power generation” will multiply the money in 2-3 weeks time? No one has bothered…). Similarly, the “troughs” are associated with panicky situations with distress, fear and destructive attitude among the investors. Current environment is idle for troughs. Will it? It’s still a question mark. The things can improve a lot if the Sensex sustain and trades well above 15063-15173 mark for the next few trading sessions. On the upside 16253-16754 is an ideal battle ground for bulls & bears. Aggressive traders should utilize sharp corrections to build short term longs, with a stop beneath 15300. Long term players, with a view of more than 6 months, can put 10-15% of the equity to buy the frontline stocks, but only on a sharp corrections/intraday falls.

Sensex at “sensitive area”, do or die situation for the bulls

Major Indices:: Sensex : 16339 :: Nifty : 4864

Intermediate Trend :: Bearish Key Technical Levels :: 17258- on the upside :: 16164- on the downside The intermediate downtrend started in the Sensex from the recent high (21206) is intact and is in good force. As on date, the Sensex has not yet shown any “strength” to reverse the downtrend. A “close” above 17258 is must for a much needed breather for the bulls (i.e. close above the recent falling gap of 17227-17258), or else it may continue to drift downward. Since the beginning of the bull run in the year 2003, the Sensex has invariably taken a support on the rising trend line (drawn on the monthly chart, see below) in the month of May/June, every year. In this year, it has swiftly tested this long term support line, once in Jan 08(15332) and now again, yesterday (16287). This re-visit is significant, as far as, long term bullish trend is concerned. If the Sensex fails to hold above 16300-16500, in this week/month, we may witness a sever fall in the coming months, which could alter all the equations for the Indian Equity markets, for the near term. Whether it will hold? The global scenario is pointing towards otherwise.

ASA World Index :

The global scenario looks more bearish as the “ASA” world index has already broken the equivalent monthly parallel channel in the month of January 2008. We may witness a continuation of the prevailing bearish trend in the “Dow”, “FTSE 100”, and “HangSeng” in the near future.

BSE Capital Goods Index : (14822)

The Capital Goods index is the clear “flag” bearer of the bull run, since 2003. The long term outlook for the index is very similar to that of the Sensex, and the rally from the low of 765 (Nov 02) is perfectly in the upward rising parallel channel. Any decisive downward breakout from the channel is likely to halt the bull run in the capital goods stocks for the next few months/year. The value of the lower trend line is placed at 14344. Watch L&T, BHEL, and ABB, closely to get early clues on the index.