Market at crossroads

F&O OUTLOOK

A technical analyst at ICICI Securities expects two scenarios to pan out after the recent fall. The index could either be pushed into a eight-year cycle that would end the 57-month bull run or it may bottom out in May and proceed to make new highs.

This month's fall of 2,909 points from the pre-Budget high of 18137 is technically weak compared with the drop of 5,874 points from 21,206 to 15,332 across eight trading days in January. The pain in the current fall is deeper due to the amount of time involved.

The cycle studies indicate that Sensex hits a high in the first quarter and a low around May every year during a bull phase. Since a top has been formed in January, we may see a bottom in April or May.

Based on the May-bottom cycle, the analyst expects the market to be under pressure at least till April or May. If the downside is restricted to around 14,500, the May-Bottom Cycle would trigger an upside. A failure to hold this level would end the 57-month bull market.

A failure to sustain the lower end could push the index into a big 8-year cycle. A break below the monthly and yearly support base-lines may suggest the end of the 57-month bull run.

The 8-year cycle calls for a much bigger, 55 per cent fall every 8 years. In 1992, the index lost 57 per cent from 4546 to 1980. In 2000, it lost 58 per cent from 6150 to 2594. Both these turning points were marked by stock market scams.