Update for 18th January 2011

     Market Takes a Breather,  But Will It Reverse From Here ?

If you were a Nifty futures trader, almost nothing of any significance happened in the markets on Monday. In fact, the market took a breather on Monday lead by the pivotals, after falling 200 points in just two and a half hours of trading on last Friday. Nifty futures opened at 5640, slightly below the previous close on Monday. But after establishing a low of 5629, which is just above the 200 DMA levels, the futures contracts remained in a comparatively narrow trading range for the entire trading day. Nifty futures established an intra-day high of 5705, but the close was at 5660. However, most stocks continued their down moves on Monday as indicated by the very negative advance decline numbers.

 Nifty Futures - Intra-day Chart

Update for 17th January 2011

 

     How Far Can the Market Go Down ?

Some of the Investors and traders might be curious why such a negative headline as the above one is being used on this site when so many investors and traders might be having heavy losses.  Well, let  this author make it clear !  It's not about being negative. It is just the outcome of an attempt to become neutral, objective and also to avoid the foolish bullheadedness. Let me make it clear once more with some explanation. Markets are falling now because of the simple reason that the markets went too far or overboard on the way up and was not actually supported by the fundamentals. Even after the fall of about 12.5 % from the highs, Nifty index is still quoting at a relatively high historical trailing price earnings multiple of 22.5 as on 14th January 2011. It is a simple fact that this level of high valuations is not sustainable on the face of slowing profit growth. Readers interested in a simple analysis of long term historical trailing valuations of Nifty index may click here to check out the Nifty Fundas page on this site. Further, if anyone is still not happy with the explanation for the fall, suffice it to say that these outcomes were twice discussed and the necessary warnings were made on this site in the posts dated August 22nd and September 9th of last year.

Coming back to the original question - How far the markets can go down, the correct answer is beyond the reach of anyone at present. Therefore, let's check the charts of various time frames to reach a best guessed answer to this question. But, let's check out the latest market action first.

We had indicated in the last post that "according to the available indications so far, the chances of the market breaking the 5700 mark is higher than a recovery from this level for various reasons. "

 

Nifty Futures - Intra-day Chart