24 October 2011

2008 Redux

Came across many posts which compared the current technical structure of S&P 500 with that of 2008 pre Lehmann structure. I thought it would be interesting to do a similar Nifty study. I hardly believe these kind of studies make sense, but they definitely make a good story!

If you look at the chart above and focus on 2008 structure, we see that after a strong correction from 6300 to 3800 in 6-7 months, Nifty staged a strong comeback from 3800 to 4600 in few weeks and I am sure looked strong enough for more rally. But there was hardly any followup buying after the initial correction and soon Nifty did a nosedive. Obviously there was the panic of Lehmann bankruptcy to spook it.

The current structure though have a similar pattern like the placement of price in comparison with 20 and 50 week SMA. MACD which being the derivative of price has to follow the same pattern. The most obvious difference is the fact that this correction has been much slower and on lower volumes.

Another point of debate could be the fact that Lehmann collapse took almost everyone by surprise (can't say many people expected it) but the current Greece situation has given enough time for bears and bulls to assess the situation.

So will history repeat itself in coming weeks or will this pattern fool its watchers?


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