Sensex slipped below 13,000 for the first time since April 5, 2007 and my portfolio was down over 30%. But I’m happy! You know why? Because now I am getting the shares of my favourite companies at bargain prices. Once the correction is over I don’t think that we will see these prices again in the future. But yes the correction could take some time say some 12 to 20 months but again that’s an opportunity. 20 months of correction means that I get 20 months to consolidate my holdings. So that once the correction is over I could simply wait and watch the markets.

The 12822 level appears to be a good technical support level. At this level, Sensex achieves percentage equality to its ‘Jan fall. The ‘Jan fall was from 21206 to 15332, which was 27.7% loss. The current fall from 17735 to 12822 also achieves the same percentage, i.e. 27.7%.

As long as we do not see a top higher than 17,735 or a higher top higher bottom formation or drops getting smaller and rallies getting bigger, the bear phase option as per 8-year cycle remains open. So far, we haven’t seen any of these parameters unfolding on the Sensex chart. The 8-year cycle calls for a deeper cut. It shows a cut of 55-58% from the respective top value. Year 1984 was the beginning of 8-year long bull-run which lasted till 1992. During 1992-93, Sensex lost 56% from 4546 to 1980. In the next cycle top, the cut was almost 58% from 6150 in 2000 to 2594 in 2001.

Time-wise, ‘1992 cycle completed the bear phase in 12-16 months, while the ‘2000 cycle took 19 months only to hit the low, which was then followed by 19 months of base formation before bull phase could begin again.

Sensex may, therefore, test sub-10,000 levels, which will be 55 to 58% cut from its top value of 21,206. Such a phase would last for at least 13 months (beginning Jan’08), and may require consolidation thereafter, before the next bull phase can begin. As long as Sensex keeps on making lower highs, the suspected bear phase would continue.

The next two important turning points occurred exactly 8 years thereafter, in 1992 and 2000. Both these turning points were marked by stock market scams, wherein the leaders of the rally had extremely difficult time later. For example, ACC, the leading stock of 1992 bull market, remained below its highs till end of 2004. Similarly, the IT stocks, which were leaders of 2000 rally, had lost as much as 90% of their top valuations by the year 2003. This year, we are sitting on this very important cycle, which therefore, may throw up similar possibilities.

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