Bulls, Bears and the Nifty

The year seems to have started on an ominous note. A colleague of mine remarked the other day,"In 2008, there was a fall of 100 points in the Nifty on January 11th. A week later there was a big fall of more than 250 points. And then, the rest is history".

Is history repeating itself? We'll have to wait and see. But the signs look very ominous. Look at the graphic below.

Ok, this doesn't show a good picture of the Nifty constituents. Nearly half of the stocks have gone into the bear territory. And some of them are perilously close to being pulled down by the bears.
The index heavyweights, the likes of Reliance, LT, SBI, HDFC Bank are already deep down in bear territory. The other heavyweights, the likes of Infosys, Tata Motors, ICICI are also showing a negative bias off late.
Unless something drastic happens, its just a matter of time that we're into a bear market.

So now what's bull territory and bear territory ?
If any stock or composite(Nifty, Bank Nifty) is above the 200 DMA line, its in bull territory. Else, its in the bear territory.

Who are the bulls and bears?
In the animal farm called stock market, there are 4 types of animals.
1. Bulls : traders who are positive about a stock, push the prices higher by buying aggressively.
2. Bears: traders who are negative about a stock, push the prices lower by selling aggressively.
3. Chickens: traders who always live in fear, make small profits. And follow either the bulls or bears, depending on the market situation.
4. Pigs: traders who buy or sell without making any kind of research.

The bulls make money. The bears make money. The chickens also make some money. But its always the pigs who are getting slaughtered.

You know you are in a bull market when :
1. You can see more and more interviews of legendary bullish traders on business TV channels.
2. You have Diwali specials where Bollywood actresses are discussing stock market investments with these legendary traders on TV.

You know the bull market nearing an end when:
1. A big hyped IPO tanks on debut, sucking out all the liquidity from the markets.
2. A housing loan scam or some other scam of that sort erupts.
3. Indian markets tank 3% in 1 hour, because North Korea fires a few missiles into South Korea.

You know you are in a bear market when:
1. You can see more and more interviews of legendary bearish traders on the same business channels.
2. The pretty presenters on TV no more have a smile on their face.
3. The technical analysts coming on TV seem to look very serious and tense. Maybe their technical buy calls have been used as a short selling opportunity by professionals.
4. You no more get calls from your broker telling you to buy a stock.

But if you were a technical trader, you kind of know what's next when you see the charts. The picture says it all. Here, SBI is just an example. There are many stocks which have fared much worse.

Well, one can see the severity of the bearish phase.The uptrend was slow and gradual. But the downtrend has been quick, but very sharp, with heavy volumes.

And this kind of pattern can be seen on most index stocks already in the bear territory. More so with the banking stocks.






Now, for the bigger picture. Nifty itself is at the edge of the bull bear territory. Another 2% lower on a closing basis, and we're in a bear market technically.

Some things to look out for.
1. Brokerage firms desperately giving dubious research calls. Saying some company will give you 30%  returns within next 3 months.
2. Stock picks in leading newspapers giving vague technical jargon and giving a Buy call on some stocks.
3. Hearing analysts and market 'experts' say, "Sensex down due to profit booking" OR "Markets down due to RBI rate hike fears"

I'm not an expert. But I have learnt one thing in the last few months, "You can invest or trade only on the basis of price. Look at the charts before you buy or sell."