RESEARCH

AN ANALYSIS OF NIFTY FROM A HISTORICAL PERSPECTIVE

19-Mar-2014 / Nifty 6524
The current stock market scenario is one of the most fragmented in the last 30 years. Just think of it, even
though the Nifty is scaling a life-time high above 6500, the sectoral indices are not following suit. The Bank
Nifty needs to rise by 9% and the CNX Midcap by 20% to make new highs. The CNX Defty needs to rise by a
mammoth 34% just to cross the 2010 high and 17% more to make a new life high!
So, is this a new bull market? Or not?

EXECUTIVE SUMMARY
Although there are risks associated with the current upmove in the Nifty (especially from the global market and
from the possibility of a hung parliament in India), and although this is not a roaring, secular bull market, the
study of historical Time-and-Price patterns below suggests there is room for continued bullishness.
The possible upside targets are 6975-7038 initially, while the market stays above 6085 and 5700. This could
be followed by a large correction, but if that does not happen and if there is a post-poll euphoria (say if
the BJP manages to sweep the General Election) we might target 8200-8500 going into 2015-16.
Thereafter 2017 could be a bear market that could last till 2019, before a full-blown real bull market emerges.

THE CURRENT RALLY IN THE CONTEXT OF ELECTION YEARS

Table: Monthly % returns in run up to elections

Year

Election
Month

1-Mth
prior

2-Mth
prior

3-Mth
prior

Average

Total

1991
1996
1998
1999
2004 (*)
2009
2014

June
May
Feb
Sep
April
April
April

3.6
13
-10.8
7.8 (*)
-1.5
9.3
4

6.3
-0.8
5.4
10.3 (*)
-0.5
-3.9
3

-3.7
17
-5.6
5
-3.7
-2.8
-3.4

2.07
9.73
-3.67
7.7
-1.9
0.87
1.2

6.2
29.2
-11.0
23.1
-5.7
2.6
3.6

This being an election year, we

examine what has happened in
earlier election years. Pre-election
rallies, which even hit new highs, is
not unusual. Out of the last 6
elections, we got a pre-election
rally in 4.

We have a pre-election rally this

time around also, but the current
rally doesnt look like much
compared to earlier times,
especially when the return is
considered on a monthly closing
basis. Obviously, higher levels and a higher closing this month may improve the picture a lot, but catching up
with the real stunners like 1996 or 1999 seems unlikely.
Importantly, there could be a similarity with 1999 when the market hit a new high in the month just prior to
the elections, like it seems to be doing now. But the magnitude of the rise this time around is much smaller.
Plus, we have to remember that after the 1999 elections the market peaked 6 months later in 2000 and went
on to retrace 90%+ of the earlier rally. Now that we are hearing a lot about 7000+ levels, could a similar peak
and subsequent decline happen this time around as well? Or can we look for levels beyond 7000?
NOTES:
(*) 10.3% rise in Jul-99, a new 5 year High till then
(*) 7.8% rise in Aug-99, a new Life High till then. The upmove continued thereafter to register a new Life
High (till then) in Feb-00.
(*) A new life high was made in Dec 2003, i.e. 4 months before the elections. Of course, the Dec-13 high
has since been surpassed.

NIFTY Historical Study - March 14

THE MEGA BULL SCENARIO: IS A 5-YEAR UPMOVE IN THE OFFING?

This Nifty Monthly Log chart shows a pronounced uptrend within the blue channel trendlines. The contracting
triangle in the 2001-2003 period at the bottom of the chart is compared with the contracting triangle seen in
current period since 2011. The market is in the process of confirming a bullish break above the triangle and a
new bull market might just be getting born.
As per this chart, there is no need to keep looking for a top in the market now as long as the lower blue
channel (currently near 5700) holds. If this chart reading is correct, we could be looking at levels well beyond
7000 in the years ahead and the market should be bought on all dips.
Technical details (Skip if you want, read to experience the joys of pure technical analysis):
Two questions may arise to the serious chart reader why D is taken near the 6000 high of 2013? Also why has E
been marked just above 5000?
Actually, both have been taken from the perspective of TIME. Every other thing just fitted nicely. As per the
marked points, C had taken 407 days and D had taken 406 days. E, very importantly, gets its significance from
not only the blue long term channel, but also from fact that it took place on the 1024th day from the 2010 top
at B, which is comparable to the 1035 days time span between the 2008 top (unmarked) and the 2010 top at B.
The difference between the two instances is only 11 days. That makes the low of 5119 very important.
Now let us look at other possibilities. What if this is NOT a mega-bull market as suggested by the chart above?
As seen in the previous page, the similarity with the 1999 scenario makes it imperative to examine non-bullish
possibilities as well, especially given the fact that the sectoral indices are severely underperforming.
This is studied overleaf.

NIFTY Historical Study - March 14

STUDY OF DIAMETRICS (NEO-WAVE ANALYSIS)
A hard look at the current rise from the low of 5119 shows some amazing symmetry in terms of both price and
time, in both the short term and long term. The time-price similarities brings into consideration a Neo-wave
pattern called Diametric, discovered and propounded by Glen Neely. A short introduction to Diametric is
given on the last page.

SHORT TERM DIAMETRIC

WAVES
A
B
C
D
E
F
G

FROM
5119
6143
5701
6343
5972
6356
5933

TO
6143
5701
6343
5972
6356
5933
6575

UP/ DOWN MAGNITUDE

Up
1024
Down
442
Up
642
Down
371
Up
384
Down
423
Up
642

DAYS
16
9
23
8
52
9
29

As seen in the chart above and table

alongside, every fall (Waves B, D, F)
takes about 8-9 days. Further, we
can see also 3 drops from the red
e to the blue F, every one
making lows within 8-9 sessions of
the swing high.

Thus, in the current market

scenario, whenever a fall of
around 350-450 points comes in 8-9 sessions, we can search for buying opportunities with a tight stop loss.
Note, E has been taken at 6356 in Feb-14 instead of at 6415 earlier in Dec-13, adhering to the principle of
faster retracement, which is beyond the scope of the current discussion. But an alternate labeling (in red) is
shown.
If this count works, what could be the extent of the rally? Generally, the G leg tends to be equal to A. Taking
the origin of the current rally (G) at 5933 gives us a target of 6957 or a lower 6757 (if we take the starting point
of A at 5319). Taking the origin of (G) from 5985 (f) gives us slightly higher targets of 6809 and 7009.
Interestingly, at the current high of 6575, the current rally is showing perfect equality with the C leg in price
terms. Could this be a near term top? As we will see in the Long Term section overleaf, this high of 6575 is
significant from other perspectives too. That said, please note, the price action so far does not imply that a top
has been made and confirmed.
As per the beauty of a true blue Diametric, we can confirm a MAJOR top only when a fall of more than 442
points (490 to be safe) points take place in less than 8 sessions. Till then, the rally may continue. But does
the long term picture support a bullish view?

NIFTY Historical Study - March 14

LONG TERM DIAMETRIC
The long term possibility of the Indian equity markets suggests continuation of the Indian Growth story in the
coming years. But, there may be need for some caution before the next boom comes.

EARLIER PERIOD: 1992 TO 2001

WAVE
A
B
C
D
E
F
G

UP/ DOWN
Down
Up
Down
Up
Down
Up
Down

MONTHS
13
16
28
9
16
16
20

% MOVE
53.2
125.0
42.6
67.4
38.3
127.3
53.2

The Time-similarity within the 1992-2001 period is

clear. Indeed, that is the first clue in recognizing the
pattern. 4 out of 7 legs, spread over a period of 9
years took nearly the same amount of time (3 legs
took exactly 16 months, 1 leg took 13 months).
Note that the movement till end of D took 66 months.
The Price-similarity between the Waves, measured in
percentages terms, is also stark:
A and G (53.2% each)
B and F (125% and 127.3% respectively)
C and E (42.6% and 38.3% respectively) differ
by a mere 4.3%.

CURRENT PERIOD: 2008 ONWARD

WAVE
A
B
C
D
E
F
G

UP/ DOWN
Down
Up
Down
Up
Down
Up

MONTHS
15
21
14
14
8
8 (so far)

% MOVE
60.0
150.0
28.5
37.5
16.3
28.5 (so far)
?

We find Time-similarity again in current scenario since

2008. This time 3 out of 6 legs (A, C and D) have taken
nearly the same time (14-15 months) and 2 legs (E and
F) may end up being the same (8 months).
Interestingly, the movement uptil D is 64 months, very
close to the 66 months taken in the 1992-2001 period.

Price-wise, the E leg has been the smallest (16.3%) as

was the case even in the 1992-2001 Diametric (38.3%).

The current rally or the F leg has just hit exact
equality with the C leg at 6575. Could this be a top?
But, equality with the D leg gives us a target of 7038
and if the market explodes after the elections, it may
achieve equality with A, giving us a target of 8190.

NIFTY Historical Study - March 14

Here is another calculation from a different perspective. Check the "F" leg in the 1992-2001 period in the longterm Diametric chart (previous page) which topped out in 2000. This is the post-1999 election peak pointed out
in the "election table" on the first page. This 2000 top was 40% higher than the previous 1997 top (point D in
referred chart) and 31% higher than the till-then life high of 1994 (point B in the referred chart).
Imposing these movements onto the current period since 2008, a 40% upside from the current period "D" and
31% upside from the current period "B" in the chart above gives us possible targets of 8300-8550, nicely
coinciding with the pattern target. This is also supported by the possible equality of G & A of the larger
Diametric on the chart just above.

THE BEAR CASE

Having pointed out the bullish possibilities in the charts above, we have to remember that the current market
is not a full-fledged bull market like 1980-1992 or 2003-2008. Huge risk may still be there, especially from the
global markets. Plus, as mentioned in the beginning, many sectoral indices are underperforming. Thus, even in
case there is an extended upmove, all boats may not rise in the flood and only a few sectors could be seen
pulling the market up, as was the case in the bull market of 1999-2000, where the main leader was IT and all
the other sectors were just passive players.
Even if we see an upmove in the coming months, we have to remember it took 9 years from the 1992 top to
make the final low and another two years of consolidation before launching the last real bull market. Following
the same route, it is possible to see a major low in 2017 (after the current 8 year cycle culminates in a
top in 2016) and a true blue bull market to begin only by 2019. In the mean time, the asynchronous nature
of the market may demand very skillful stock picking to make a handsome return from any possible upmove,
and not necessarily from the index stocks only.

LEANING TOWARDS THE BULLISH

Looking at the very big picture, the red channel cant be overlooked as it contains the whole secular bull
market. Irrespective of the Diametric scenario coming true or not, IF and WHENEVER Nifty touches the lower
red trendline, we can expect a MAJOR SECULAR multi-year rally. But a fall to the lower red trendline does not
appear at all likely at the moment.
We already know of the 8 year cycle prevalent in the Indian equity markets. In 1984 the biggest percentage
rally found its real momentum, although the rally was on from 1980. Thereafter, the market topped out 8 years
later in 1992 after the Harshad Mehta scam. Next, the IT boom turned into a bust in 2000. Still later, the
famous bear market came in 2008. An 8-year extrapolation from the 2008 bottom gives us 2016 as the time for
next possible major top.
Keeping in mind the 8 year cycle detailed above, and the fact that Election years have a history of producing
huge, often unanticipated, moves after the results, we may have to lean towards the more bullish possibilities
for the market, even if they seem improbable and stretched right now.
We must remember that the biggest and fastest moves come as trend continuations, not as trend reversals.
This is evident from 2004, when the post-poll crash came in a market that was already selling off from the Dec13 high. Or it can be seen in 2009, when the first upper circuit took place after a 40-50% rally. Or it can even
be seen in the 6% single-day rise in 1999, coming in an uptrending market.

SYNTHESIS AND CONCLUSION

Putting all of the above together, we lean towards long-term bullishness for now while the market stays above
6085 and 5700. The possible targets are 6975-7038 initially. This could be followed by a large correction,
but if that does not happen we might target 8200-8500 going into 2016 in the event of a post-poll
euphoria. Thereafter 2017 could be a bear market before a full-blown bull market finally emerges that could
last till 2019.

Overleaf:
A Note on Diametrics

NIFTY Historical Study - March 14

A NOTE ON DIAMETRICS, A NEO-WAVE ANALYSIS

In the words of the discoverer Glen Neely
himself:
These patterns began to appear in the early 90's as
the market's way to adjust to the increasing
popularity of wave theory (too many people were
looking for the same things, so the market created
new ways of behaving).

It is called "Diametric" because it combines two

Triangular patterns, one initially Contracting up
to the "d" leg, followed by an Expanding
one. The contraction point is the "d" leg, and the
legs on either sides of it tend to be equal.

They were the first patterns witnessed where most

wave segments took about the same amount of
time, with one or two of the waves consuming a
little more (or little less) time than the others.

Analysts comment:
We have seen frequent occurrences of this pattern
in the Indian markets as evident in the charts
above.

While most waves consume a similar amount of

time, they do NOT consume a similar amount of
price. A Diametric will possess an obvious
expansionary or contractionary bias during the first
four waves of the pattern; that bias will reverse
during the second half of the formation.

Neowave patterns like Diametrics sometimes help

us make better sense of the world, stepping outside
the ambit of classical Elliott Wave analysis.

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Analyst: Ranajay Banerjee: Senior Technical Analyst
Editor: Vikram Murarka: Chief Currency Strategist
Disclaimer:
The above views are based on the latest available information. Though the information sources are believed to be reliable, the information is not guaranteed for
accuracy. While the views are proffered with the best of intentions, neither the author, nor the firm are liable for any losses that may occur as a result of any action
based on the above. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these
markets are fully aware of the risk of real loss involved. Past performance is not necessarily an indicator of future