Apr 12, 2010

8 Year Cycle and Dow Theory

      Many times you have heard about long term story of Indian economy and growth and your broker, financial planner or tax advisor says invest for long term in Indian stock market but market moves in un realistic manner and discount everything vary early and responds in such a manner that small or retail investor always trap like in 1992 bubble of harshad Mehta then in 2000 ketan parekh and IT bubble and then in 2008 US sub prime problem.
     As a experience investor we have try to learn from long term chart of the main index and try to give view.

Some observations are as below,

(1)   sensex has 8 year cycle

At every 8 years sensex make top and then falls.

Like from 1984 to 1992
1992 to 2000
2000 to 2008

(2)   market correct at least 60% from the 8 year cycle top

1992 crash 4546 to 1980=56% down from top
2000 crash 6150 to 2594=57% down from top
2008 crash 21206 to 7697=63% down from top

(3)   From 1984 to 2008 of 24 year market moves in higher top-higher bottom formation.

1992 top was 4546 and correct to 1980

2000 top was higher then of 1992 which was 6150 and correct up to 2594 which was higher bottom then of 1992 correction of 1980

2008 top was higher of 2000 which was 21206 and correct up to 7697 which was higher bottom then of 2000 correction of 2594

Now see in every 8 year cycle market turns down with at leas 60% down from high and do not break last higher bottom and creates higher top.

Now if any one who believe in Indian growth story then on Dow Theory  and cycle theory consider two things

(1)   Indian market can hit major top in


(2)   market will correct at least 60% from their top

In technical analysis stop loss is must whether you are trader or long term investor.

In Dow Theory bull market higher bottom becomes your stop loss

Let us explain how

If you have invested from 1984 then market correct from 4546 to 1980

Then in 2000 market correct from 6150 to 2594

At this level those who have invested must keep stop loss of last higher bottom which was at that time 1980 and it was not broken and those who remain invested has get good return.

Then in 2008 market correct from 21206 to 7697
At this level those who have invested must keep stop loss of last higher bottom which was at that time 2594 and it was not broken and those who remain invested has get good return

Now if any one who wants to play India growth story then they needs to keep stop loss of 7697 which is last higher bottom

Now one thing is clear before next bubble in 2015/2016 comes, every investor who are invested in market through mutual funds,insurance plan or directly for very very long time invest your money with stop loss of 7697 if this break then Indian market will enter in to very long term bear phase.

We will update more analysis based on cycle theory and Dow theory as and when needed.

Greece Bail-Out

                      European governments has offered debt- plagued Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates in a bid to stem its fiscal crisis and restore confidence in the euro. Forced into action by a surge in Greek borrowing costs to an 11-year high, euro-region finance ministers said yesterday they would offer as much as 30 billion euros in three-year loans in 2010 at around 5 percent. That’s less than the current three- year Greek bond yield of 6.98 percent. Another 15 billion euros would come from the International Monetary Fund.
Posted on Monday, April 12, 2010 | Categories: