Have the bulls run their course for now? That is the question most investors have been asked after the markets fell from Sensex levels of 6900 to about 6400. While every upmove is followed by resistance at higher levels, technical studies do not point towards a termination of the bull run just as yet.

The last several sessions have tested the patience of the bulls and have caused much consternation among the futures and options players, especially those who are caught on the wrong foot. The scenario is similar to the first half of January 2005 when the markets surrendered a good 8-10 per cent very rapidly.

A majority of the leveraged positions was surrendered after abject dejection and the long players were taken to the cleaners. While the possibility of an encore cannot be ruled out, the important thing to note here is that the damage to your portfolio/open trading book is directly proportionate to your leverage factor.

The calendar year 2005 is not one for aggressive, undisciplined and trigger-happy traders. While a variety of reasons can be attributed for the fall in the markets, your capital is eroding and margin calls (in case you are leveraged) are more a rule than exception. Under such circumstances, you could take the approach of either a trader or an investor.

Trader's approach: The markets are falling, that's all you need to know. Dump your emotions and positions, go with the flow and short the markets. It is immaterial if you play the same stock that you are/were holding long or hedge against some other securities. You are committed to recoup your losses and take a fresh view on the situation when clarity emerges.

While this approach is likely to yield superior results in the absolute near term, it will force you to digress from your medium/long-term view and catch you unawares whenever the turnaround occurs. You could salvage the situation now and take a hit later. The risk involved is high.

Investor's approach: This approach is likely to exert stress in the immediate future but will ease matters in the medium term. After taking a hit on their investments, traders/investors get disoriented. A sense of withdrawal from the markets is a direct result.

That is a situation all seasoned players know how to avoid in adverse circumstances. In case a temporary setback has occurred, you have avenues open like writing options, buying puts/calls, and resorting to exotic/synthetic strategies to salvage the situation. Booking losses too often will mean that you are struggling to get your capital back to where you started from.

However, there are situations where you need to cut your losses and run, and you need to determine whether you are in that situation. A practical understanding of your current situation is a pre-requisite. The capital involved is high.

A few words of advice: If you are invested/have leveraged long positions in scrips where the long- and medium-term charts are still bullish/intact and the relative strength comparative vis-�-vis the indices is high, you should witness a revival in your stocks rapidly.

It's only the short-term waves that are turning negative, which tend to correct more rapidly. Watching open interest and traded volumes on these counters will be another proposition. You must hold a fixed portion of your trading/investment pool amount in ready cash to meet contingencies like the present scenario.

In case your personal finances allow it, average the high RSC (relative strength comparative)/low beta counters, but in a pyramid fashion. Just as a pyramid gets broader near the base, your averaging should get more aggressive as your scrips near significant threshold levels. For example, buy 100 shares at 500, buy 200 shares at 490, buy 400 shares at 480 etc. This way, your acquisition cost tends to be near the current market price.

Is the bull market over?

The short-term charts indicate that the indices will get support at 2004 (Nifty) and 6380 (Sensex) levels in the absolute near term. These are threshold levels of 0.618 per cent retracement of the upmove from January 27, 2005, which ended in March 2005.

While these levels are not holy cows that will not get violated, immediate supports exist on the Nifty at the 1963 levels. This support is meaningful from two angles. The trendline in the weekly chart below shows a support there and a 1.618 per cent retracement of the entire upmove after the post-Budget rally that ensued also points towards this level being a support.

The third support at the 1900 levels is a significant one and will provide many whipsaws, false signals and choppiness after which the trend determination process will be amply clear.

Wave theory enthusiasts will understand that the rally from 920+ levels to 2017 corrected nearly 62 per cent in May 2004 and resumed its northward journey in June 2004.

The 2116 levels were 0.618 per cent extension of the prior upmove if calculated from the 1439 levels. We saw temporary profit-taking in January at the 2120 levels (four points away from this calculation) and a weak resumption above 2120 in March 2005.

Even if the current wave from 1439 levels in June 2004 was to be of the same magnitude as the previous wave between May 2003 - January 2004, the eight-10 month target is 2500 and above. Traders should simply watch out for signs of violation of major support levels till then. Our outlook remains positive on the markets in the medium/long term.