Are bears still active in Indian stock market?

Indian stock markets have been witnessing heavy selling pressure over the last couple of months. Many reasons are being attributed to this fall, like US economic recession, inflation, rise in fuel prices etc. I had indicated in one of my previous posts, "Will the bulls be able to win the battle?" that Nifty had a bearish target of 3220. I posted this article on March 21, 2008 and Nifty touched a low of 3199 on October 10, 2008. While we can arrive at probable bullish and bearish targets based on chart patterns and breakouts, it is generally not possible to precisely predict a time frame.

The bear market made many investors and traders cry. Of course, the shorties booked lots of profits as well. Those who invested their retirement funds were wondering why such huge sell off was taking place. It was reported by media that FII's were selling (who was buying ?). Many technical/fundamental analysts disappeared from business channels; few stock recommendation web sites closed down (no patronage?!). Television anchors were saying indirectly that technical analysis was not working in bear markets! Then what was working in bull markets?

As I have mentioned in my FAQ, the investors need to do their homework well before investing. Hot tips, instant message calls and SMS may work in a rising bull market but certainly not in a falling bear market.

Between July 16 and September 18 an "inverted cup" was formed; its right side low of 3800 was broken on September 29, leading to a bearish "inverted cup and handle " breakout with downside target of 2950. Even this has now been broken. Nifty fell to a low of 2253 on October 27, breaking the June 2006 low of 2596. The Muhurat trading (just an hour) on Diwali day saw many stocks rallying. This was followed by another positive close yesterday.

Let us now take a closer look at the weekly chart of Nifty.

There are still no confirmed reversal signs/positive divergence in the weekly or daily charts of Nifty. However, it can be observed from the above chart that Nifty has just managed to touch the lower support line of the Andrew's pitchfork.

In a trending market, prices generally fluctuate between the "prongs" or the lower and upper lines (support and resistance) while "handle" acts as the median line. Now that Nifty has hit the support line on weekly chart, it is rebounding.

How far this rally can extend? It's now too early to presume since there are no reversal signs. The median line could act as a minor resistance; if Nifty manages to break this, the upper line could act as another resistance. A 45 degree line drawn on the pitchfork gives approximate target of 3435. However this needs more confirmation in daily/weekly charts. One may expect a rally in the index in the coming days.

On October 14 Nifty touched a high of 3648 and this Monday's low of 2253 leads to a fall of 1395 points (38.2%) before gaining marginally. In this falling market, there is a stock which stood firm without losing much during this period.

The daily chart of GTL is shown below. It closed at 177.85 on October 14. The biggest fall since then was on October 24 (4.29%). Why did the bears exclude this stock from thrashing?

The previous uptrends ended on May 5 and July 8 respectively. The resistance trendline drawn using these two peaks (reaction highs) has been extended and shown above. Though the stock had closed above this trendline once, volumes were pretty ordinary; a decent rally was also absent. Strong buying was seen after October 6. Usually the first wave is short and the stock closed above the resistance trendline on October 14, though without much volumes. Since then, it is consolidating. Good volumes were seen yesterday with the stock gaining 1%. It has apparently turned bullish. The next technical targets for the stock are 206.80 and 239 in the short term.