Relevance of Economic cycles in Indian markets...Should a chartist care about Economic cycles?

Nifty would be in the last leg of a bear market and majority of Indians don't believe it would end soon.How do we know a market is bottoming out?We are at the peak of an interest rate hike cycle and inflation is supposed to come down in the first half of 2012. Crude oil and Dollar are two major components which decides the inflation cycle. As we are seeing in the commodity market crude oil was testing life time high's till last week and cooled off just 2-3 days ago. Thus it should first top out and start its downward journey for some relief. Dollar Index is continuously making higher bottoms and it would be a major danger for those companies which are involved in trading in overseas markets and it would be a major challenge for the growth of the economy as well.Thus the result season would not be that good for the market at least in the coming quarter. As Dollar was making life time highs it would have a major negative impact for most of the balance sheets. One could see bond yields coming down when the market is about to bottom out and it is a sign of people buying equities. There would be a little more downside left in commodities especially in Gold.Gold could most probably test 26500 levels in the near future.Thus peak of rate hike cycle and bond yields coming down would be the first signs of a recovery process. Another major worry would be European markets as we have not seen anything worse in Europe and we are yet to see major correction in European markets. Thus in a nut shell it would be difficult to get out of all the economic issues that soon but as a long term investor one should start buying any dips close to 4500 levels in Nifty.We have attractive valuation level of 13-14 P/E when the markets coming down from these levels and one could get the stocks at the lowest levels on any panic selling day.Thus make use of the available opportunities in this current downtrend.(followed by nifty weekly analysis 19-23 December 2011)

Nifty Weekly Analysis - 19-23 December 2011

Finally Nifty retested 4640 and broke below that!!It is expected to slide lower as investors have started squaring off long positions.As said in the previous post Dollar Index crossed an important level of 80 on the upside and it would be a hindrance for any up move in Nifty. If we have a look at the volatility data we can see short positions got accumulated only at the top and lot of long positions got out of the market especially long term investors. It was a crash in every respect as along with Nifty , bank nifty and many biggies registered new 52 week lows. As i mentioned in the previous post Nifty got locked in 4830-60 zone as lot of short positions are still active at that level and it topped out exactly in the same range.It is a good time to do some shopping in the equity segment as the valuations are really attractive.Though we were sitting on cash till now time has come to start investing with a time horizon of 2-3 years.For a trader Nifty could still give lower lows and eventually it could form a low any where between 4500-4300.Thus it could be altogether a different approach in trading and investing at this point of time.As per time cycle there is every chance of a good pull back rally on or before 24th December or 21st of December. Technically charts are telling that it is a crash and we could not find a bottom soon ,but market can do anything and that too to any extreme.Thus i'm not saying that Nifty would show some strength in the near future but one should be careful when every body is bearish in the market as markets usually rally at these times.Look for volatility peaking out and Nifty trading at huge discount as these are some of signs of bottoming out.As a trading level lets keep 4500-4530 as a fair level of the current trend with a reversal above 4860. As of now weekly range would be 4530-4770.I'm uploading the same Nifty chart from 2001-2011 where i was talking about 4500 level.