Market Close to Long-Term Crossroads - AP

With the markets sliding almost every day, it is now time to sit back and have a broader look at where we are going.

All those who are familiar with candlestick charting methods will be aware of the basic concept of 'higher tops and higher bottoms'. A strong trend is said to be in place when higher tops and higher bottoms are formed on successive candlesticks.

On a 'yearly basis', we have seen exactly this happening ever since this bull run started in 2003. The high of every subsequent year was higher than the previous year and the low of every successive year was also higher than the previous year. This year too, the high made in January was higher than the high in 2007.

What happened after that is known to all. Now, we are precariously close to the low of 2007, which was 3554, and 12316 on BSE Sensitive Index. Today's lows were within striking distance from these lows of 2007.

I am not trying to suggest that the long term bull run is in danger. Not at all. However, it is a well-known fact that a strong trend of higher-tops higher-bottoms is broken when a previous low is breached. When this happens, it usually takes quite a while (a few bars = years, in this case), for the previous high to be crossed.

Thus, if the index goes below 12316 and Nifty below 3554, I do not think we will see the January highs being crossed at least for the next couple of years -- perhaps beyond 2010! It must be mentioned here, that almost two-thirds of the individual stocks have made lows that are lower than those of 2007. Many focus on 52-week lows, which in my view, is misleading.

As far as international markets go, most of the major markets - Dow, Nasdaq, Nikkei, FTSE, have aready gone below their 2007 lows. Thus, the million-dollar question now is whether we can protect 12,316 on the Sensex and 3554 on the Nifty. A low in 2008, lower than 3554 on Nifty can also lead to a 'bearish engulfing pattern' or a 'dark cloud cover', depending on where Nifty closes on December 31, 2008.

I cannot predict what will happen on December 31, but I can only say now, that 3554 on the Nifty should not be broken, if one hopes to see new highs in 2009.

In any case, 2008 will NOT see a new high.