I have been clsoely following the indices of some countries, and based on empirical evidence, when the Indian Sensex hit 20,000 about 1 1/2 years ago, I had called it the market top, and also had predicted that if and when a correction comes, the Sensex may hit 8000 at the minimum...
I was proved dead right in Oct 2008, when the Sensex hit 7600, and has since recovered to dizzy levels, much like the other markets.
Many people had asked me how I called this out. Let me explain my rationale.
- 20,000 is a huge psychological barrier by any standards, and can only sustain if there is sustained incremental earnings potential beyond that. By the time the Sensex got there, the PE was about 28, and about 22 based on FY09 projections, and in my opinion, there was not much steam left from thereon. I had pulled out all my money from the market the day the index hit 20000. Of course, it went on to briefly cross 22000, before that major bear market fall all the way to 7600.
- On the rationale of how much low can it get, I had based them on my observations then, but now I am able to prove it with charts from Yahoo. I am attaching a few as samples - the Hangseng, Nikkei, Straits Times, Shanghai Composite and, of course, the Sensex. As can be clearly seen, from approximately the top of the bull market, the bear grip has lasted for all the way to about 1/3rd of the peak value, give and take a few. This, I have observed in the previous down cycles in the late ninetees, as well as the early ninetees, has always been consistent. Now, thanks to the power of the Net , and thanks to Yahoo, I have been able to prove it with charts.
Where do the markets go from hereon?
Your guess is as good as mine!
