Indian Market are falling continuously from couple of months. Questions are popping up are we entering the bear market? Is the bull run over ? or Is this just a correction ?
Before we get into the details. Let us understand the difference between correction and bear market. Any drop of 10% or more is called as correction. When the market falls 20% or more this correction becomes bear market.
How much market has fallen so far ?
Nifty made a high of 9100 in March 2015. Today it is trading at 7351 levels. That is, fall of 1750 points or 19% . So by definition Nifty is still in corrective phase. If Nifty starts trading substantially below 7200, we are going into the bear phase. The multiyear monthly chart also shows 7200 is the critical level
How long can the fall extend ?
Let us try to find the answer with Fibonacci numbers. Application of Elliot wave tells this is the 4th wave corrective move.
1st wave move started in October 2008 finished in October 2010 at 6350
2nd wave ended at 4500 which was 50% retracement
3rd wave ended at 9100 which was 1.61 times of wave 1
4th wave correction is normally 38% retracement of wave 3 which comes out to be 7190
Therefore 7200 is the very important level to watch. Most of the times 4th wave retraces to 38% only. But in some cases it can retrace to 50% which translate to downside of up to 6600. 4th wave never goes below the high of 1st wave which is 6300. Therefore by Elliot wave analysis Nifty won’t be going below 6300 even in the worst case.
Should you sell everything and exit the market ?
7200 is the very critical level. It should be watched closly on the weekly close basis. If this breaches the downside of 6800/6600 gets opened. If you are a trader you should wait for reversal from 7200, a long term investor should not sell his stocks on correction or even in bear market. Market goes up only, its going up from centuries, will go up in future also, correction and bear phase last few years only.
Caution: This post is for educational purpose only. I am sharing my personal views. It’s not any recommendation of trading/investing. I am not a SEBI registered person. Readers are advised to do their own research or consult their financial advisor.