8 Year Time Cycle & Dow Theory
Many times you have heard about long term story of Indian economy and growth and your broker, financial planner or tax adviser says invest for long term in Indian stock market but market moves in un realistic manner and discount everything vary early and responds in such a manner that small or retail investor always trap like in 1992 bubble of Harshad Mehta then in 2000 Ketan Parekh and IT bubble and then in 2008 US sub prime problem.
As a experience investor we have try to learn from long term chart of the main index and try to give view.
Some observations are as below
(1) Sensex has 8 year cycle
At every 8 years Sensex make top and then falls. Like from 1984 to 1992, 1992 to 2000, and 2000 to 2008
(2) market correct at least 60% from the 8 year cycle top
1992 crash 4546 to 1980=56% down from top 2000 crash 6150 to 2594=57% down from top 2008 crash 21206 to 7697=63% down from top
(3) From 1984 to 2008 of 24 year market moves in higher top-higher bottom formation.
1992 top was 4546 and correct to 1980 2000 top was higher then of 1992 which was 6150 and correct up to 2594 which was higher bottom then of 1992 correction of 1980 2008 top was higher of 2000 which was 21206 and correct up to 7697 which was higher bottom then of 2000 correction of 2594
Now see in every 8 year cycle market turns down with at leas 60% down from high and do not break last higher bottom and creates higher top.
Now if any one who believe in Indian growth story then on Dow Theory and cycle theory consider two things.
(1) Indian market will hit major top in
2015/2016 2024/2025
(2) market will correct at least 60% from their top
In technical analysis stop loss is must whether you are trader or long term investor.
In Dow Theory bull market higher bottom becomes your stop loss. Let me explain how…
If you have invested from 1984 then market correct from 4546 to 1980, Then in 2000 market correct from 6150 to 2594.
At this level those who have invested must keep stop loss of last higher bottom which was at that time 1980 and it was not broken and those who remain invested has get good return.
Then in 2008 market correct from 21206 to 7697.
At this level those who have invested must keep stop loss of last higher bottom which was at that time 2594 and it was not broken and those who remain invested has get good return.
Now if any one who wants to play India growth story then they needs to keep stop loss of 7697 which is last higher bottom.
Now one thing is clear before next bubble in 2015/2016 comes, every investor who are invested in market through mutual funds,insurance plan or directly for vary vary long time invest your money with stop loss of 7697 if this break then Indian market will enter in to vary long term bear phase.
I will update more analysis based on cycle theory and Dow theory as and when needed.
DATES FOR ACTIVITY AND WIDE FLUCTUATIONS
The following dates indicate times when stocks will be very active and have wide fluctuations, making tops and bottoms. While all stocks will not make tops and bottoms around these dates, some of the most active ones will and if you watch the ones that turn around these dates, it will prove helpful in your trading:
January 5th to 7th, 12th to 15th, 18th to 24th
February 9th to 12th, 20th to 22nd, and 27th to 28th.
March 10th to 11th, very important for change in trend; 21st to 22nd important; 28th to 29th another very important date for change.
April 3rd, 9th to 10th, 13th to 15th, 21st to 23rd.
May 3rd to 4th – watch stocks that make top around this date; 9th to 11th another important date when some stocks will make bottom and other stocks will make top. 22nd to 23rd and 29th to 31st – very important dates for change in trend; watch for stocks that will make top around this date.
June 1st to 2nd – quite important; 7th to 10th another important change; 21st to 23rd a more important change.
July 3rd to 5th – very important for change in trend; 9th to 10th also quite important; 21st to 24th more important.
August – one of the most important months for change in trend. Many stocks will start on their long down trend. 7th to 8th – quite important; 16th to 17th important; 23rd to 24th important, 29th to 30th of minor importance.
September 2nd to 3rd important; 16th to 17th important, should be bottom of a panicky decline. 21st to 24th important for top; 27th and 28th important for bottom of a big break.
October 2nd; 8th to 9th; 18th to 20th very important, – which stocks which start to decline and go with them; 26th to 28th minor importance.
November 10th to 22nd – a very important period for wide fluctuations. Airplanes, radio and some electrical stocks may have sharp advances. Other important dates for changes are 1st to 2nd, 17th to 19th, and 24th to 25th.
December 1st to 2nd important; 16th to 17th of minor importance; 23rd to 24th greater activity and of major importance.
The above dates are not only important for changes in trend and times when bottoms and tops should be reached, but on these dates important news is indicated and some will be of a sudden, unexpected nature, at times favourable and at other times unfavourable, but causing stocks to be active and fluctuate, making tops and bottoms and changing trend.
