- Nifty well above MA(100), while MA(100) remains well above MA(200) suggesting strong bullish bias
- McClellan Index trending higher and well above EMA(59) suggesting more stocks are advancing compared to declining
Market was expected to go sideways or pullback before results BUT instead it went into "HOPE" stage otherwise known as "anticipation" or "euphoria" before the results are out. This will turn into "cause & effect" reaction, what does that mean!!!
- Results come out as expected - Market may jump another 1000 points or take another big jump. Initial reaction from average investor is "get in at any cost" to avoid missing the rally. Market goes vertical making it perfect euphoria phase also known as parabolic move. The move can be very convincing and takes this market to another 25-30% gains in matter of weeks/months. Isn't it good? YES, only if you get in at right time and also get out at right time. Usually, during euphoria phase (such a move is unsustainable) everyone is convinced that this market cannot go down and money making appears to be easy. Last time we saw this happen was during later part of 2007 and 2010. Check out what happened after 6-8 months...
- Initial Market sell off after results - Profit taking starts and market takes a hit and goes into pullback/correction but this correction is contained and market gets the needed support around 6400 area. If the new government is stable then market will take off again and this can prove to be the best time to get in for a LONG term bull market.
- Market goes into bear phase - This event will happen in stages and it will be painful. BUT it will also depend on the kind of NEW government comes into power. If we get a coalition government then market will certainly see a initial sell off, followed by a pause. In few months we shall know the stability of such a government which will decide further direction of this market. However, this also means we might end up getting too many zig-zag moves before entering full blown BEAR market and it will be painful for both bears and bulls as choppy markets are NOT friendly to anyone.
What does it mean for our investments?
- Mutual Funds - If invested in equities then enjoy the rally till it lasts. If in cash/liquid funds/FDs then time to have lots of patience and wait for the right opportunity.
- Stocks - ONLY invest in strong patterns and DO NOT forget to have STOP LIMIT in place. Some of our watch list picks are doing quite well, also check out trade size calculator to determine your STOP LIMIT.
Market although bullish appears to be entering euphoria phase, be cautious...