Friday, February 3, 2012

Are the Sensex and Nifty back in bull markets?

Relentless buying by the FIIs have changed stock market sentiments from extremely negative to almost celebratorily positive. Have the Sensex and Nifty returned to bull markets? Is it time to change strategy from ‘selling the rallies’ to ‘buying the dips’?

Technically, there are four criteria that define a bull market. They are:

1. A 20% rise from the bottom.

For the Sensex, the recent bottom was 15136 (touched on Dec 20 ‘11). A 20% rise means a level of 18163. Still a little more than 500 points to get there. For the Nifty, the recent bottom was 4531 (also touched on Dec 20 ‘11). A 20% rise means a level of 5437. A bit more than 100 points away.

2. Index (or stock) trading above its 200 day EMA.

Both Sensex and Nifty are trading above their 200 day EMAs – so this definition has been met.

3. The ‘golden cross’ of the 50 day EMA above the 200 day EMA.

The 50 day EMA of the Sensex is rising, but is still 500 points below its 200 day EMA. The 50 day EMA of the Nifty is also rising but is more than 150 points below the 200 day EMA.

4. Index (or stock) retracing more than 50% of its fall.

The Sensex peaked at 21109 on Nov 5 ‘10, and dropped 5973 points to its low of 15136. A 50% retracement of the entire fall would mean a level of 18122 – almost 500 points away from today’s intra-day high. The Nifty hit a high of 6338 on Nov 5 ‘10, and dropped 1807 points to its low of 4531. A 50% retracement of the entire fall would take the index to 5434 – still about 100 points further than today’s intra-day high. (Now you know why technical experts are talking about the 5400 level.)

Only one (2 above) out of the four criteria that define a bull market has been met so far. Does that mean that both indices haven’t entered a bull market yet? Technically, the answer is in the affirmative. Ideally, meeting three out of the four criteria should leave no doubt that the bulls are on top. For that to happen, another 500 points on the Sensex and 100 points on the Nifty are left to cover. The way the FIIs are buying, that could happen in the very near future.

Related post

Are we in a Bear Market or a Bull Market?


feltra (Raman R) said...

Subhankar ji,

Thanks for the post, and especially helping me know the 4 points that define bull market. Out of this, I had thought that only above 200 defines bull market. I had not seen the other 3 points mentioned in any of the TA sites that I visited (its possible that I may have missed them there).

Thanks & Regards,

Subhankar said...

Appreciate your comments.

As a conservative long-term investor, I prefer to wait for at least three of the four criteria to be confirmed.

Some prefer a 61.8% retracement of a bear market fall to confirm a bull market.