Saturday, January 31, 2009

STOCK MARKET BOTTOM - REVELATIONS

A new breed of hunters has arrived on the scene. The bottom hunters of 21st Century! Across the globe this breed is burning the proverbial midnight oil to fervently hunt for bottom in all markets. Here is a spot of good news for this beleaguered lot. The Bottom Has Been Found. Feast your eyes below!

Dow Jones Industrial Average
For bottom hunters of American market, the most wonderful news is that the bottom has already been reached. Dow Jones Industrial Average(DJIA) had reached the bottom at the level of 7400. Without violating this level, from here on the assured upswing will take DJIA to 9600 level. This means that short term investors can pump in money at 8000 level to reap benefits till DJIA reaches 9600. At this level it will be prudent to book profits for all shades of investors. The percentages of profit to be booked will be the differentiators between short, medium and long term investors. Short term investors should book 100% profit at 9600 level, whereas medium term investors should book 50% profit. Investors with a long term view should book at least 30% profit, if not more. But in all fairness DJIA has the potential to reach 10300. So after booking profits at 9600 one should be on the look out for clear buying signals around 8800.

The pertinent question that arises is - how have I arrived at this conclusion of the bottom? Well in DJIA charts, if we take the wave top around mid May 2008 the value is 13100 and the bottom is at 10800 around mid July 2008. That's the first leg of the wave. By that count if we apply Elliot Wave Theory, the pullback should have taken it to the level of 11700. However in actuality DJIA pulled back to 11800 in the beginning of Aug 2008. For the second leg of the wave, downturn from 11800 should have taken DJIA to level of 8100 as per calculations. In reality DJIA reached 8150 in the last week of Oct 2008. The pullback from here should have reached 9550 but on ground DJIA reached 9700 at the start of Nov 2008. As per Elliot Wave Theory the third and final leg of this wave should have culminated at 7450 , and so it did in the last week of Nov 2008. Completion of the wave starting at level of 13100 and terminating at 7450 signifies that a minimum upswing of 38.2% is guaranteed from the bottom of 7450. And that upswing should safely take DJIA to 9600.

NIFTY
Shifting focus to Indian market, one has to announce with a heavy heart that the bottom has still not been reached. The bottom will be reached around 1750 as per Elliot Wave calculations, and that is the most terrifying thought. Downhill journey of Nifty that began from the top of 6357, reached on 08 Jan 2008, has yet to see its logical bottom. If Nifty fails to conquer 3150 in the near term , then we shall see Nifty touch 1750 first. But in case Nifty manages to pullback above 3150 then it will go up to 3450. In such an eventuality the Nifty bottom will be formed at 1970. On a more simplistic note, Nifty bottom is expected to be formed in the range of 1750- 1970. The trouble is that this bottom is also not a long term bottom, but in a bear market it will be substantial enough for the Bulls to rejoice. The reason is simple. The assured pullback from such a bottom is 1400 Nifty points. This pullback has even the potential to notch up 1800 Nifty points. Reason enough for the bulls to say CHEERS!

Let me be honest with you. I have not given detailed explanations for the points in preceding paragraphs. I believe that detailed calculations on the above predictions may confuse some of my readers. However if anyone desires to seek detailed calculations on the expected movement of indices discussed, I shall only be glad to oblige. Do feel free to seek clarifications on the denouement . I shall also be unfolding the suspense on specific sectors and stocks in these pages, so do keep a look-out for the same.