Nifty: Bears sniffing around

20 Apr 2009, ET Bureau

After touching much-talked about gauge of hope, the 200 DMA (daily moving average), the Nifty failed to close above the same. Against average gains of 5% in the past five weeks, the index just managed to end above its last Friday’s close, moving higher by a mere 1%.

Its international peer Dow Jones Industrial Average (DJIA) has not budged much from its previous week’s close, as on Thursday’s close. The question that begs most market participants is whether we are at the peak of a bear market rally or the bottom has been made for good?

Comparing the Dow’s current performance with the great depression days, more trading weeks or even months may be required for the answer to unfold. During the great depression, the Dow topped out at 381 in September 1929 and fell as low as 199 in November , but showed a striking rebound of more than 45% in April 1930. But hold our breadth; this was not a bottom indeed. In the late 1930, the Dow made a new low of 158 and continued to decline further before eventually bottoming out at 41 in July 1932.

Let me make it clear that with this reference, we are not being cynical. But it may be too early to conclude whether the markets have already made a bottom.

200 DMA: A Difficult Territory


The Nifty started the week on a buoyant note and managed to briefly touch 3500 for the first time since October . However, barring Wednesday, it has failed to close above its 200 DMA for two subsequent sessions. As the first chart reveals, the index last moved above this decisive indicator in April 2008. In mid –April last year, it closed above this frontier, but surrendered all its gains within three days and reverted back to its losing streak.

This time around, however, what could save the Nifty from a plunge is the strong support at 3150, which was closer to November and December highs. Meanwhile the gap between the 20 and the 50 DMA is widening. Moreover, even after a more-than-13 % decline on Friday, the volume build-up looks decent. This keeps the hope of a run above this Lakshmanrekha intact.