On 13th Aug 2021, Nifty closed at 16529.
This analysing has been made on Nifty Monthly Chart from Nov'1998 to Aug'2021. I have tried to summarize the nifty movement in a "complete cycle" of Bull and Bear market.
Let's understand what is "Complete Cycle" means?
To begin with, I would like to introduce few concepts that will be important for this study:
1. "Last Downside to Current Upside (A)" aims to establish a relation between current upside to previous downside. Calculated by dividing current cycle upside % by previous cycle downside %
2. "Breakout Run (B)" is based on high-to-high approach and shows how much return Nifty has generated from its previous cycle high to current cycle high.
3. "Combined Study" is a study of both factor (A) and (B) together.
Starting point for this analysis is considered when Nifty was at 800 points in Nov'98 (which was the low of that period).
- 1st cycle was started in Nov'98. During the period, Nifty uptrend was continued till Jan'08 when Nifty touched 6357 points (~695% up from the low). Ignoring the small vibrations during the cycle, Nifty contracted ~65% (or, 4085 points) between Jan'08 to Oct'08 to make a low at 2252 points to conclude "1st Complete Cycle".
- 2nd cycle was started in Oct'08 and concluded in Dec'11. During the cycle, however, Nifty failed to break the high of previous cycle but touched to 6338 points (~181% up from 1st cycle low) and then contracted to low of 4531 points in Dec'11 (~29% down from top) to complete the 2nd cycle.
** Last Downside to Current Upside - 2.81, No breakout of previous cycle high - Hence, no combined ratio to be calculated
- 3rd cycle was started in Dec'11 and concluded in Feb'16. During the cycle, Nifty broke the high of previous cycle and touched to 9119 points (~101% up from 2nd cycle low) and then corrected to 6825 points (~25% down from top) from Mar'15 to Feb'16.
** Last Downside to Current Upside - 3.55 and Breakout run of 43%. Combined ratio is 1.54
- 4th cycle was started in Feb'16 and concluded in Mar'20. During the cycle, Nifty again broke the high of previous cycle and touched to 12430 points (~82% up from 3rd cycle low) and then corrected to 7511 points (~40% down from top) from Jan'20 to Mar'20.
** Last Downside to Current Upside - 3.26 and Breakout run of 36%. Combined ratio is 1.19
- 5th cycle was started from Mar'20 and is currently in process. Till date, Nifty is up ~120% from 4th cycle low point.
** Currently, Last Downside to Current Upside - 3.04 and Breakout run of 33%. Combined ratio is 1.01
Average combined study for 3rd cycle and 4th cycle comes out at 1.36 (simply, taking mean of combined study for 3rd and 4th cycle). Now to achieve this mathematical calculation of combined study (1.36), Nifty top should be around 17450 which can be considered a level where nifty can correct itself.
Nifty at 17450, a bull rally of ~132% will be achieved from the low (7511) made during COVID crash.
Now to analyse how much Nifty can correct from 17450 level, I want to assume the previous corrections (corrections in normal scenario to be considered, which shall not be effected by any external factors like 2008 crash or 2020 crash). To believe the average correction Nifty made in 2nd and 3rd cycle, future correction shall be for around 25-27% from the top.
However to support the correction calculation, let's combine the study with Nifty Monthly Chart Analysis. During current 5th Cycle, Nifty has breached the upper trendline in Dec'20 which was started back in Jul'08. If Nifty comes to re-test this trendline in future, the correction should extend ~20-22% which can bring the Nifty to around 13500-14000 range. NSE:NIFTY NSE:NIFTY
DISCLAIMER: This formula and study is computed by me and is shared for educational purpose only.