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The market has shown some resilience over yesterday and today. Are the markets therefore nearing their bottom and what do the past trends indicate?

Ever since the market started selling off from January 8, a lot of questions have been posed as to how long will the correction last and when and what level will it bottom out?

The key question being asked now is whether this is a 2000-01 type of scenario, where the correction lasted about 19 months or whether it is like May 2006 whether the correction lasted only about 1.5-2 months.

In 2000, the market sold off about 48% and it took the markets 19 months to bottom out. It started in 2000, around the month of February, and bottomed out 19 months later in 2001. The worst breadth at that time was seen during the month of March 2001. When the correction had just started, the market breadth was about 0.64. There was a 69% dip in the total market turnover during that entire correction period.

During the two other intermediate corrections, in the beginning of the bull-run 2002-2003 and 2004, the market corrected by 17-18% both times. The market correction lasted five months and eight months respectively and the market breadth reached a low of about 0.66 and 0.65 respectively.

In the May 2006 correction, markets bottomed out pretty quickly and in 1.5 months, turnover dipped by about 30% in that span itself. But the market breadth did not worsen significantly. It was at its lowest at about 0.73 in the month of May.

This time we have seen that the markets have corrected about 21%, in line with May 2006 corrections. Two months of correction have been over and slightly over what we saw in May 2006. Advance/decline is more in line with what we saw in 2000-01 correction, where we are actually seeing the worst market breadth in the month of January at about 0.57. It recovered partially to about 0.86 in February and continues to remain negative in the month of March. But in terms of dip in average turnover, markets have dipped about 30% in from the December peaks, which is in line with 2006.

We have to wait and watch because it is a pretty critical inflection point, to see if the breadth still continues to remain worse and the turnover continues to remain low. We may be actually panning out more towards the 2000-01 scenario rather than the 2006 scenario.

Source: Moneycontrol.com