The Three Stages of Primary Bear Markets
Primary Bear Market - Stage 1 - Distribution
Just as accumulation is the hallmark of the first stage of a primary bull market, distribution marks the beginning of a bear market. As the "smart money" begins to realize that business conditions are not quite as good as once thought, they start to sell stocks. The public is still involved in the market at this stage and become willing buyers. There is little in the headlines to indicate a bear market is at hand and general business conditions remain good. However, stocks begin to lose a bit of their luster and the decline begins to take hold.
While the market declines, there is little belief that a bear market has started and most forecasters remain bullish. After a moderate decline, there is a reaction rally (secondary move) that retraces a portion of the decline. Hamilton noted that reaction rallies during bear markets were quite swift and sharp. As with his analysis of secondary moves in general, Hamilton noted that a large percentage of the losses would be recouped in a matter of days or perhaps weeks. This quick and sudden movement would invigorate the bulls to proclaim the bull market alive and well. However, the reaction high of the secondary move would form and be lower than the previous high. After making a lower high, a break below the previous low would confirm that this was the second stage of a bear market.
Primary Bear Market - Stage 2 - Big Move
As with the primary bull market, stage two of a primary bear market provides the largest move. This is when the trend has been identified as down and business conditions begin to deteriorate. Earnings estimates are reduced, shortfalls occur, profit margins shrink and revenues fall. As business conditions worsen, the sell-off continues.
Primary Bear Market - Stage 3 - Despair
At the top of a primary bull market, hope springs eternal and excess is the order of the day. By the final stage of a bear market, all hope is lost and stocks are frowned upon. Valuations are low, but the selling continues as participants seek to sell no matter what. The news from corporate America is bad, the economic outlook bleak and not a buyer is to be found. The market will continue to decline until all the bad news is fully priced into stocks. Once stocks fully reflect the worst possible outcome, the cycle begins again.
Friday, February 15, 2008
The Three Stages of Primary Bull Markets
Hamilton identified three stages to both primary bull markets and primary bear markets. These stages relate as much to the psychological state of the market as to the movement of prices. A primary bull market is defined as a long sustained advance marked by improving business conditions that elicit increased speculation and demand for stocks. A primary bear market is defined as a long sustained decline marked by deteriorating business conditions and subsequent decrease in demand for stocks. In both primary bull markets and primary bear markets, there will be secondary movements that run counter to the major trend.
Primary Bull Market - Stage 1 - Accumulation
Hamilton noted that the first stage of a bull market was largely indistinguishable from the last reaction rally of a bear market. Pessimism, which was excessive at the end of the bear market, still reigns at the beginning of a bull market. It is a period when the public is out of stocks, the news from corporate America is bad and valuations are usually at historical lows. However, it is at this stage that the so-called "smart money" begins to accumulate stocks. This is the stage of the market when those with patience see value in owning stocks for the long haul. Stocks are cheap, but nobody seems to want them. This is the stage where Warren Buffet stated in the summer of 1974 that now was the time to buy stocks and become rich. Everyone else thought he was crazy.
In the first stage of a bull market, stocks begin to find a bottom and quietly firm up. When the market starts to rise, there is widespread disbelief that a bull market has begun. After the first leg peaks and starts to head back down, the bears come out proclaiming that the bear market is not over. It is at this stage that careful analysis is warranted to determine if the decline is a secondary movement (a correction of the first leg up). If it is a secondary move, then the low forms above the previous low, a quiet period will ensue as the market firms and then an advance will begin. When the previous peak is surpassed, the beginning of the second leg and a primary bull will be confirmed.
Primary Bull Market - Stage 2 - Big Move
The second stage of a primary bull market is usually the longest, and sees the largest advance in prices. It is a period marked by improving business conditions and increased valuations in stocks. Earnings begin to rise again and confidence starts to mend. This is considered the easiest stage to make money as participation is broad and the trend followers begin to participate.
Primary Bull Market - Stage 3 - Excess
The third stage of a primary bull market is marked by excessive speculation and the appearance of inflationary pressures. (Dow formed these theorems about 100 years ago, but this scenario is certainly familiar.) During the third and final stage, the public is fully involved in the market, valuations are excessive and confidence is extraordinarily high. This is the mirror image to the first stage of the bull market. A Wall Street axiom: When the taxi cab drivers begin to offer tips, the top cannot be far off.
Hamilton identified three stages to both primary bull markets and primary bear markets. These stages relate as much to the psychological state of the market as to the movement of prices. A primary bull market is defined as a long sustained advance marked by improving business conditions that elicit increased speculation and demand for stocks. A primary bear market is defined as a long sustained decline marked by deteriorating business conditions and subsequent decrease in demand for stocks. In both primary bull markets and primary bear markets, there will be secondary movements that run counter to the major trend.
Primary Bull Market - Stage 1 - Accumulation
Hamilton noted that the first stage of a bull market was largely indistinguishable from the last reaction rally of a bear market. Pessimism, which was excessive at the end of the bear market, still reigns at the beginning of a bull market. It is a period when the public is out of stocks, the news from corporate America is bad and valuations are usually at historical lows. However, it is at this stage that the so-called "smart money" begins to accumulate stocks. This is the stage of the market when those with patience see value in owning stocks for the long haul. Stocks are cheap, but nobody seems to want them. This is the stage where Warren Buffet stated in the summer of 1974 that now was the time to buy stocks and become rich. Everyone else thought he was crazy.
In the first stage of a bull market, stocks begin to find a bottom and quietly firm up. When the market starts to rise, there is widespread disbelief that a bull market has begun. After the first leg peaks and starts to head back down, the bears come out proclaiming that the bear market is not over. It is at this stage that careful analysis is warranted to determine if the decline is a secondary movement (a correction of the first leg up). If it is a secondary move, then the low forms above the previous low, a quiet period will ensue as the market firms and then an advance will begin. When the previous peak is surpassed, the beginning of the second leg and a primary bull will be confirmed.
Primary Bull Market - Stage 2 - Big Move
The second stage of a primary bull market is usually the longest, and sees the largest advance in prices. It is a period marked by improving business conditions and increased valuations in stocks. Earnings begin to rise again and confidence starts to mend. This is considered the easiest stage to make money as participation is broad and the trend followers begin to participate.
Primary Bull Market - Stage 3 - Excess
The third stage of a primary bull market is marked by excessive speculation and the appearance of inflationary pressures. (Dow formed these theorems about 100 years ago, but this scenario is certainly familiar.) During the third and final stage, the public is fully involved in the market, valuations are excessive and confidence is extraordinarily high. This is the mirror image to the first stage of the bull market. A Wall Street axiom: When the taxi cab drivers begin to offer tips, the top cannot be far off.
DAILY REPORT FOR
NIFTY: - Open 4944 High 5220 Low 4944 Close 5202 (+273 points)
P/E 22.19 P/B 5.45 Adv 50
Supp 5120/5060/5000 Res 5260/5320/5395
SENSEX: - Open 17265 High 17838 Low 17265 Close 17766 (+817 pts)
Supp 17600/17410/17240 Res 17970/18300/18510
All stocks in Nifty +++:-
· Markets opened very strong on positive global cues and shorts were forced to cover in late trade as all 50 stocks on the Nifty were positive. Sensex rose by 817 points.
· Volumes were average - Rs 13545 Cr in spot market and F&O Vol at Rs 37973 Cr.
· Breadth was very positive – BSE Adv 2139 Dec 826 Unch 52 NSE Adv 1034 Dec 120 Unch 13
· Top Gainers: - RPL, BHEL, BPCL, Unitech, REL
Top Losers: - No Losers
· Though index gains were huge, FII activity wasn’t that great. FIIs bought just Rs 60 Cr and MFs bought Rs 205 Cr in Cash Market. Foreign investors bought Rs 3270 Cr in Index and Stock Futures.
· Total OI 70708 Cr (+4761 Cr) PCR at 0.93
· Nifty shed 4% OI. Basis -15.15
· OI Added:- AIA 21%, BEML 27%, CanBk 21%, GNFC 22%, JPAsso 35%, Nicolas 28%, Syndi 24%, UniPhos 35%
· OI Shed:- Minifty 12%, DLF 7%, Hind Petro 8%, PFC 8%, Renuka 9%
Indian ADRs: - http://tinyurl.com/33m7dx
Global markets:-
Outlook for Friday:-
· Centre hiked prices of Petrol and Diesel yesterday and this will add to inflation. RBI has already said about current inflation being high.
· Yesterday’s rally may primarily be because of short covering as both FII and MFs figures are not so encouraging. That is why we need to see whether follow-up buying comes in a day or two.
· For today’s trading, Nifty has to sustain above 5120 intraday. Intraday supply from around 5260 is not ruled out. Major resistance for Sensex can be 18300-18500.
· Parsvnath Dev (274):- Buy around 265-270 with SL 256 and Target 295-300 (Don’t wait for targets to be reached in this market, one can book profits wherever one likes as market is not yet so stable.)
Disclaimer: These recommendations are based on the theory of technical analysis and personal observations. This does not claim for profit. I am not responsible for any losses made by traders. It is only the outlook of the market with reference to its previous performance. You are advised to take your position with your sense and judgment. I am trying to consider the fundamental validity of stocks as far as possible, but demand and supply affects it with vision variations.
Thursday, February 14, 2008
DAILY REPORT FOR
NIFTY: - Open 4836 High 4986 Low 4836 Close 4929 (+91 points)
P/E 21.03 P/B 5.16 Adv 34 Dec 15 Unch 1
Supp 4915/4870/4825 Res 5010/5090/5175
SENSEX: - Open 16816 High 17141 Low 16725 Close 16949 (+341 pts)
Supp 16900/16700/16400 Res 17430/17670/17960
Metals rally:-
· Indices opened strong and remained that way as Tata Steel and SAIL saw good buying. Sensex was up nearly 350 points.
· Volumes were almost same as Tuesday - Rs 13172 Cr in spot market and F&O Vol at Rs 37555 Cr.
· Breadth was not so positive – BSE Adv 875 Dec 2094 Unch 48 NSE Adv 399 Dec 745 Unch 23
· Top Gainers: - Unitech, Hero Honda, Tata Steel, SAIL, ITC
Top Losers: - Nalco, Cipla, Wipro, Idea, RCom
· Net activity of FIIs and MFs was very small. FIIs bought Rs 9 Cr and MFs bought Rs 23 Cr in cash market. Foreign investors bought Rs 1688 Cr in Index and Stock Futures.
· Total OI 65946 Cr (+724 Cr) PCR at 0.86
· Nifty shed 4% OI. Basis -20.55
· OI Added:- Balrampur 10%, Indian Bank 38%, JP Asso 16%, PFC 13%, Unitech 11%
· OI Shed:- HOEC 11%, Nicolas 12%, Relcap 17%, WelspunGuj 9%
Indian ADRs: - http://tinyurl.com/33m7dx
Global markets:-
DJIA rallied 178 points overnight as Tech and Energy shares rose. HDFC Bank ADR was the top gainer with 4% upside. Nasdaq too was up 53 points.
Outlook for Thursday:-
· Markets to open gap-up on positive global cues. 5090 can be the probable resistance for the Nifty intraday. Move below 4870 will take us to 4825 and then panic-selling can happen.
· GMR Infra (147):- One can buy the stock with strict SL of 134 and Target 168-172.
· Shipping corp has a very good dividend yield. The company has announced 28th Feb as the Record Date for Interim Dividend. Last year company had paid Rs 8.5 (85%) dividend. So it is a good buy for INVESTMENT. CMP 196
· ONGC and NTPC show some positive formation and it looks as if supply is getting absorbed around these levels. These 2 stocks can help the index go up.
· We have not fully bottomed out yet so one has to take a longer term view and buy slowly.
Disclaimer: These recommendations are based on the theory of technical analysis and personal observations. This does not claim for profit. I am not responsible for any losses made by traders. It is only the outlook of the market with reference to its previous performance. You are advised to take your position with your sense and judgment. I am trying to consider the fundamental validity of stocks as far as possible, but demand and supply affects it with vision variations.
Tuesday, February 12, 2008
DAILY REPORT FOR 12 FEBRUARY, 2008
NIFTY: - Open 5120 High 5126 Low 4803 Close 4857 (-263 points)
P/E 20.72 P/B 5.09 Adv 9 Dec 41
Supp 4730/4640/4535 Res 4930/4985/5080
SENSEX: - Open 17427 High 17427 Low 16457 Close 16630 (-833 pts)
Supp 16400/16000/15800 Res 16840/17230/17450
RPower can’t make bulls happy:-
· The much-awaited Reliance Power listing could not cheer the street as Sensex started in negative territory and supply was seen the whole day. Sensex crashed by more than 1000 points in intraday trade. Finally we closed down by 833 points.
· Volumes were higher - Rs 19724 Cr in spot market and F&O Vol at Rs 41257 Cr.
· Breadth was quiet negative – BSE Adv 337 Dec 2630 Unch 45 NSE Adv 65 Dec 1076 Unch 21
· Top Gainers: - VSNL, Satyam, Zee, Glaxo, Maruti
Top Losers: - REL, Tata Power, Unitech, GAIL, RCom
· FIIs sold Rs 1268 Cr in Cash market and DIIs sold small Rs 22 Cr. Foreign investors sold Rs 863 Cr in Index Fut and bought Rs 488 Cr in Stock Fut.
· Total OI 65327 Cr (-3645 Cr) PCR at 0.91
· Nifty added 3% OI. Basis -46.45
· OI Added:- AIA 15%, Balrampur 14%, HDIL 10%
· OI Shed:- AdiBirla 13%, Bajaj Hind 16%, BEL 15%, GDL 10%, HCC 9%, IndiaInfo 13%, Karnataka 12%, Nicolas 12%, Redington 10%, REL 11%, Triveni 15%
Indian ADRs: - http://tinyurl.com/33m7dx
Global markets:-
US Stocks rose as a rally in oil prices boosted energy shares. Dow Jones closed up by 57 points. VSNL ADR shot up by more than 9%.
Outlook for Tuesday:-
· Nifty has closed below 200 SMA (4979) quite comfortably and this is a negative sign for the markets going forward. We need to recover quickly and get above this level as early as possible for bulls to have some say.
· If we can’t even cross that level, supply will become more intense and sub-4000 levels are a possibility on the Nifty. Market players are advised to still wait some more time and not to buy in haste.
· Opening may be flat to positive today. Sensex has to cross and sustain above 16840 intraday. 17200 to 17400 is a strong resistance.
Disclaimer: These recommendations are based on the theory of technical analysis and personal observations. This does not claim for profit. I am not responsible for any losses made by traders. It is only the outlook of the market with reference to its previous performance. You are advised to take your position with your sense and judgment. I am trying to consider the fundamental validity of stocks as far as possible, but demand and supply affects it with vision variations.
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