Thursday, January 27, 2011

Sensex NIFTY India finally closes below 200 DMA - 1st time since Jun`09

NIFTY finally closes below 200 DMA - 1st time since Jun`09. Chart here

Summary - Here is why Sensex NIFTY India Index will correct 20% to 30% in 2011 ( 20%-20% correction from the top made on 5- Nov -2010).

The bear market arrives finally and the primary trend has changed to negative i.e turned to bearish.So it makes sense for a trader to go short as over 95% of all stocks follow the direction of the primary trend.
For an investor it also makes sense to stay out of the markets , stay at least 50% in cash to take advantage of possibility when prices are 20% to 30% lower or make selective small buys on dips with expectation that the price could fall further.

If Sensex falls by 10%, at least 95% of ALL stocks will also fall. ( as Beta for most stocks is always positive). It DOESNT make sense to make a bullish bet when the Primary trend is bearish as your odds of winning are low as your stock pick has to be among the narrow 5% of the stocks that have bucked against the primary trend.
This is one reason why I haven't posted my Top 5/10 Conviction Buy Stock Picks in this blog.

I believe this year ( early 2011) would see Indian Markets correcting by 20% to 30%. Key point supporting my short thesis would be
- From Mar`09 low,Sensex has risen 2.6x or 160% from 8k to 21k . Chart here.In the history of Sensex/NIFTY ,this would be a sharpest rise in the smallest time. ( For the more technically inclined people, please see my earlier post on chart-wise analysis of similar sharp rise in Sensex and its performance thereafter. Post here ) And till date, Sensex / NIFTY hasnt fallen more than 10% .Other countries ,inspite of rising less than Sensex has already given more than 17% corrections in 2010.  (Note: Low period is taken as Mar`09 for all countries )
  • China `s Shanghai Composite index - had risen 60% and has fallen 33% in 2010 (chart here)
  • Japan `s Nikkei Index - rose 57% and fell 23% last year (chart here )
  • US S&P500 - rose 78% and fell 17% last year ( chart here )
  • Bangladesh Dhaka Stock Index - rose 260% and fell 30% in this year YTD. ( chart here )
  • Charts of all the three countries - US,Japan and China together in one post, posted by Sy Harding here

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