G Devanathan of Rare Enterprises says we are seeing a trading rally, which could go on for a few days. In a very large bull market one can have a bear market within that bull market, that is what we are experiencing now.

Excerpts from CNBC-TV18's exclusive interview with G Devanathan:

Technically, what have you made of today's pull back?

I think it was due. After having a bull market for 37 months, the Sensex had gained from effectively 2,900 to 12,700 or thereabouts. We have had a one-month full correction, which was quite vicious, and we retraced about 38% of these entire gains.

In the last half hour yesterday we had seen an exhaustion of downside momentum. We could see some positive divergence visible across the daily charts.

In that sense this rally was due, and the overnight world markets held. So I think we have started a trading rally.

The point to be noted here is that we had a downside gap in the range of 8990 to 9428 about three days back, which was probably the fourth gap downwards since we started the fall.

This gap has turned out to be an exhaustion gap and we have filled it today. Today's morning gap was also being held largely after it got tested. We are seeing a trading rally, which could go on for a few days.

Where might it take us up to?

Volatility and uncertainty will still abound. But the fact is that the markets are oversold and quite a bit of the negative is priced in. We could see a rally going further. 9700-9800 could attract selling and we could slip again. Broadly 10000-10200 is also quite possible.

Looking at the medium-term charts, can you say with some degree of conviction that the market has found any kind of bottom at 8800 or is it premature to make such a judgment?

One can say that there is a bottom trading now. You cannot say that it is a long-term bottom because that is still sometime away. This bottom looks like there are ingredients for it to hold for a few weeks.

When you look at some of the heavy weights, do you sense that they have bottomed out as well?

It is the same across the board. We have seen that most of the heavy weights have also been oversold. There is very little open interest in futures. Everybody has given up hope on almost all stocks.

That is why the speed of the bounce is equally ferocious today. BSE is going to register one of its largest ever gains if it continues in this fashion. This is largely widespread in frontline stocks.

If one sees the frontline stocks hold their gains for two-three days then probably we could see an emergence of buying in the midcap as well.

Do you think the long-term bull framework has been violated in any way given the levels we have broken in this fall?

The Dow theory says that in a very large bull market one can have a bear market within that bull market. I think that we are possibly seeing that phenomenon right now.

Many people feel that we have broken the 200-day moving average and have started thinking that we are in a bear market.

We could be in a bear market within a larger bull market. One could retrace or give back the gains of maybe 33% or even 50% and still be in a bull market.

As of now, we have given away some 38% gains and we are rallying from there. Maybe in the next round we could lose some more. But one could still be in a larger bull market and still give 50% of the gains.

I think that is what India is playing up to. So we are in a temporary bear market. It is going to take time because we have seen vicious losses across the board. It is not going to come back easily.

The world market conditions are such that, it is very difficult for the market to make new highs now.

For more such reports, log on to www.moneycontrol.com