- Nifty has managed to get above MA(100) and MA(200) - suggesting strong trend reversal
- McClellan Index has managed to stay above EMA(59) - suggesting more stocks are advancing than declining on cumulative basis which in turn suggest that more stocks are participating in this market rally
- Market under went trend reversal during these periods
- In 2012 it was start of the BULL run and now it might be start of the massive BULL run ahead of us
- Take a look at dotted trend line in 2012 and 2016 areas
- In both scenarios, RSI breaks through the dotted trend line before the BULL run
- In both scenarios, PPO breaks through the dotted trend line before the BULL run
- In 2012, as soon as RSI reaches 70 mark after the break of trend line, market experiences significant pullback
- Check 2012 area near dotted trend line, market appears to break it followed by a serious pullback. We have yet to see a similar pullback in 2016 and that does not guarantee we will get one!
Market has confirmed a trend reversal by breaking the down trend line and McClellan Index is supporting it. However, previous historical pattern suggest that we should expect a meaningful pullback before any significant long term rally ahead. But we can also argue that it is our bias or possible denial of missing the train. We can often see patterns which we want to see in historical data to suffice our reasoning. Remember, market often does what it wants and tries to cause maximum pain.
For now we know for certain that we have confirmation of trend reversal, which means we can get back into market. In an event if we do get a meaningful pullback then that would be another awesome opportunity to invest. We need to keep an open mind and accept the facts, be flexible and keep our bias out of facts, even if it means we are wrong!
What does it mean for our Investments for now?
- Mutual Funds - If still invested in equities then time to relax, as we are on the cusp of turn around. Starting SIP would be a good idea as we see confirmation of positive trend reversal. If in cash/ FDs/ liquid funds then it is time to start investing. If you are waiting for pullback then you might be waiting for long or might even miss the train.
- 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.
Watch out for another article regarding how to find right funds or stocks for this BULL run.
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Take a look at our 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 breaks out, a trend reversal event...