- Market in range bound action
- MA(100) crossing MA(200) on downside suggesting further downside action
McClellan Index continues to remain above EMA(59) suggesting more stocks are advancing than declining in a cumulative manner, but remember Price trumps everything.
Lets understand the mystery of 1000 points:
- Difference between highest peak 9000 (head) and the neck line 8000 = approx 1000 points
- Once the neck line is broken then the tendency is to swing to other direction by same amount as the height of the head in head-shoulder pattern
- So our final target of this entire decline is approx 1000 points from 8000 level = approx 7000 area
Our speculation based on above charts:
- Market will soon find support and attempt for another bounce. We shall see lot of churning and wide swings establishing a base, this effort will take few weeks possibly Sept-Oct.
- Once the base is established then market will stage a impressive rally and try to close the recent gap. Suddenly everyone will start getting bullish. We can call this year end rally going into early next year, possible Oct-Jan.
- Once the rally is over and bounce attempt stalls, market will experience the next painful decline. This will catch many retail investors by surprise. This decline will scare the hell out of retail investors and everyone will become extremely bearish once the market reaches near 7000 area.
But what will cause such market turmoil?
- Historically, month of Sept-Oct are considered bearish for the markets
- Year end is considered bullish for the markets
- Euro-zone instability will add more chaos causing further market instability
- Dollar will appreciate and capital will flow into dollar especially if FED does a rate high in September
- Many other global economic factors such as Chinese growth drops further, another financial crisis in Euro-zone, etc
Remember, the path of least resistance is on downside but that does not mean this market cannot change direction. Market will do what it wants to do, we need to be prepared for next market move.
What does it mean for our Investments?
- Mutual Funds - If still invested in equities too late to get out, you might as well ride the correction and be prepared to feel the pain. No reason to continue SIP at this point. 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.
Market in correction mode, stay outside...