Downward Channels/Breakdowns. Comparison of 2008 and 2011



Majority of the things are posted in the chart itself.


Now some important things.

- > We had 6-7 attempts on the lower end and that is where the breakdown took place.

- > The last leg did not see any pause. We just bounced back for a day from supports to crack further.

-> Post the breakdown we saw a huge panic with a slew of global news/high volatility.

-> We did see a re-test to the channel line and kept on testing it for the next few months.

-> The turnaround post 9.7k did not give any chance and within months we were at 15k !!


Some conclusions.

- > Breakdowns happen in the line of most tested end of the channel.

-> The panic creates a major long term in a ferocious bear market.

- > The turnaround is equally fast and may even see a false breakdown.





Now come to 2011


- > We have had more attempts on the higher end of the channel. So a breakdown on downside looks less probable.

-> The fall is very slow we have had 13-15 months like before but we have not seen a sharp correction like 2008. Also we do not have a preceding bull run like 2007 πŸ™‚ so this will be slow and steady bear market or a consolidation in a long term bull market.

- > Now the point is how can we expect a fast down leg like 2008. This is what majority of the market-men are waiting for and will keep waiting forever. πŸ™‚ ( this is my view )



-> Since we did not have a fast bear market neither can we expect a september-october 2008 type fall nor a full on reversal like 2009 leading to up circuits.

- > So my view is we may now get into a consolidation with downside risks at 5-8% lower then recent lows in worst case. Also we might have touched bottoms on specific stocks already.

-> Apart from that if somebody is looking for a fall below the channel then it has to be a start of a new bear market and not the last leg.




-> The bear market which we are in is not like 2008 so stop comparing with it and expecting similar bargains may not be a great thing.

-> Also we may now start looking for stock specific ideas unless you are on the camp of a new bear market !! beyond the normal 38.2% to 61.8% ( that is beyond 4300 and 13000 levels.).

-> Above all reversal will not be like 2009 so a breakout beyond the upper end of the channel will not be a buy !! but a time to get cautious as we still need a consolidation.


Disclosure: As we are almost 90% invested at lower levels and rest on the trading side by start of the week we had trading positions of 15 stocks open ( now barely a couple ) !! so the gains in 1 week can add to the bullish bias. But overall as maintained in previous post we might be reviewing our stance of considering base case at 4300/14000. View remains to be stock specific and very defensive in long term portfolio and very aggressive on short term πŸ™‚


Stock specific wise – NESCO ( back from 502 to 600 + ) , Adiyta Birla Nuvo ( 715 to 820 ) , Godrej Inds ( 170 to 190 ) keep trading part of the quantity to reduce acquisition cost.



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Meanwhile the New Year Gift offer at Rs 2999 for a year may not stay for long --- For more call Asif 09833666151


Happy Investing,


Nooresh Merani


  1. Anand Marakani
    January 14, 2012

    What do you make out of the mass downgrades of European countries by SnP?
    Is it time to book some profits?

    1. nooresh
      January 15, 2012

      Hi Anand,

      The downgrades were expected since last 3 months. Now its time to get something new. Markets will adjust to the announcement in next couple of sessions. As mentioned as part of discipline our trading positions are already booked and marginal longs. Investment view remains the same.

  2. jonty
    January 14, 2012

    Dear sir , Probably you are correct, Icici and axis bank have made exactly 61.8 % retracement of upmove from 2252 nifty bottom to 6338 nifty top. 641 and 784 respectively.

    but it seems next downleg which may not break 4531 bottom will be leaded by IT sector and AUTO sector they have started correction late.

    1. nooresh
      January 15, 2012

      Hi Jonty,

      I am not looking at whether 4531 breaks or it doesnt but i feel we might be bottoming out on a lot of stocks. Also not expecting a violent move like what happened in 2008. Expectation is this correction will be slow and steady and then consolidate. Will wait for turnaround signals. Seeing some turnarounds in many stocks.


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