Last weeks massive rally must have taken many by surprise and now the stampede will begin. Does it mean we have missed the perfect entry? Was that really the market bottom OR just another bear market rally!!! What do you think?
Market is still below MA(100) and McClellan Summation Index remains below EMA(59), in short nothing has changed really! This market is certainly not out of woods and will need lot more strength to turn around.
Market has managed to get above MA(50) BUT can it get above MA(100) that easily! We were expecting this bounce, however the magnitude was quite powerful due to budget season. It should not be a surprise if this market continues to ride higher in short term till 7700 near MA(100) or 7900 near MA(200) which shall prove to be areas of resistance.
Weekly chart displays clear resistance areas shown by dotted lines. RSI and PPO has yet to cross the dotted downtrend line, also we are not seeing any divergences as of yet!
Take a look at below weekly charts in different time period, Can you spot a common theme in all of them?
- Divergence between Nifty and RSI, PPO - As Nifty makes a new low, both RSI and PPO start trending higher
- Marginal NEW low in Nifty before trend change - Take a look at 1st low formed by Nifty and then after couple of months another marginal low lower than previous one before actual trend change
- Consistency - 2008-2009 & 2011-2012 were periods when market formed major reversal in trend
What do we learn from above history?
What does it mean for our Investments for now?
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Market is bearish and do not get sucked into bear rally...
- Current rally might just be a bear rally and NOT trend reversal, however many will believe that the bottom is in and jump in this rally in anticipation of missing out.
- A high probability of market making marginal low before the next BULL run and can remain range bound for a while.
- It could be another 5-6 months before we get actual trend reversal.
What does it mean for our Investments for now?
- Mutual Funds - If still invested in equities then time to hold onto this roller coaster ride, exiting now will be very expensive and painful. No need to rush to start SIP unless we get positive trend reversal sign. If in cash/ FDs/ liquid funds then it is wise to stay on sidelines.
- Stocks - ONLY invest in strong patterns with good earnings guidance and DO NOT forget to have STOP LIMIT on open positions. When market is in correction, it will drag everything down with it. Check out our trade size calculator to manage your risk along with potential buy candidates watch list.
Try out Service -
Take a look at our new service called "Quick Charts" which offers an easy visual way to look at daily and weekly charts of chosen stocks side-by-side. we hope it helps you in your research.
Market is bearish and do not get sucked into bear rally...