Market managed to bounce from extreme level and in the process was able to break free through the resistance. The move came in after several major inventions from RBI due to which rupee slide appears to be under control for now. BUT how far will this bounce go and how much strength will it have!!! ONLY time will tell, so what shall we expect?
Not much has changed in below chart, bounce attempt in market shall soon experience resistance at MA(200). Also McClellan Index appears to be turning a bit, however it does continue to remain below EMA(59) as well as MA(100). We might be witnessing market bounce similar to what we saw at #2 & #3 juncture.
On daily chart it is clear that market will have to overcome many resistance before continuing its BULL run. Immediate resistance is at MA(50) near 5700 area followed by next one at MA(200) near 5800 area. Expect lot of volatility and wide swings. Change of trend always comes with lot of volatility and zig-zag action.
On weekly chart, take a look at LONG tail in recent bars. This shows how volatile any market gets in times of uncertainty and any bounce from such levels indicates a relief rally, however it does not confirm start of BULL trend. Hence DO NOT get trapped and be cautious.
After many volatile sessions, RBI interventions in currency market, new RBI governor statements, etc market got a relief rally. Can this relief rally sustain!!! Lack of government constructive policies, very high current account deficit, 2014 election uncertainty and revised GDP of 4.4% shows that investors are loosing confidence. In addition to all of this, Global economic situation will add more fuel to this scenario. Government and RBI will have to establish confidence by implementing robust policies and a road map for future growth. We have many obstacles ahead of us and path of least resistance appears to be on downside, hence probability of this bounce faltering is much more. BUT we are ONLY talking about probability and NOT GUARANTY, hence there is always a chance that our analysis is wrong and market might take this turn for good. ONLY time will tell...
What does it mean for our Investments?
Market bounced from extreme oversold level, however outlook remains bearish...
What does it mean for our Investments?
- Mutual Funds - If you are still invested in equity funds then use this bounce opportunity to exit the markets, as soon as you see this bounce is failing then its time to sell. For now remaining in cash or liquid funds appears to be better option. Keep an eye on commodity funds which might provide the next investment opportunity.
- Stocks - Make sure you have STOP LIMIT in place for open positions and take partial profits.
Market bounced from extreme oversold level, however outlook remains bearish...