Thursday, August 6, 2009

Indian Stock Markets - What Next : Aug 2009

In my last post titled "Budget Time Blues" published on 30 Jun 09, I had predicted that till Union Budget Nifty will hold ground between 4100 and 4500 while Sensex will be range bound between 13500 and 15000. And the indices did just that. But little did I realise then that on day of Budget(06 Jun 09) , Nifty will take a roller coaster ride of the entire range just mentioned. Sample this : on 06 Jun 09 Nifty had a low of 4138 and a high of 4480. Quite unnerving, wouldn't you tend to agree? However that is one characteristic of Indian indices we have to learn to live with.

What surprised me most was the fact that even after decisively breaching 4100 level on closing basis, Nifty didn't capitulate under relentless selling for four days, triggered mainly by market perception that the budget was neither-here-nor-there affair. On the other hand, from a low of 3919 on 13 Jul 09, Nifty has smartly notched up 812 points in three weeks or so. May be I didn't take into account the fact that Dow would go towards its best case scenario tipping-over-point of 9500. This tipping-over point finds mention in my post on 29 Jun 09 titled "Dow Jones - Prediction for July 2009). Since Dow has actually marched north towards 9500, so has rest of the markets and Nifty has not disappointed either.

That brings us to the present question- What Next? Consider the following facts and take an informed decision:-
  • I am yet to believe that we are out of the woods. If this is the start of a new Bull run then the first wave has to correct at least by 38.2% (if not 50%) before the second wave can take it to newer heights. I believe we have yet to witness that correction. But in case the correction we witnessed in June-July 2009 qualifies as sufficient correction, then we could see Nifty at 5500 in next to no time.
  • Nifty should be watched closely for large volume and price declines. If we find accelerated and sharp fall in Nifty in coming week then it will rush towards its current support of 3920. In that case we may witness formation of a double/triple top pattern , which can drag Nifty to 3300.
  • For a strong durable up move, Nifty is yet to take support of 200 day SMA, which is presently hovering around 3300.