Thursday, October 27, 2011

NIFTY / Sensex could rally +20% to 5600 / 19000 from recent low

NIFTY  / Sensex could rally +20% to 5600 / 19000  - i.e very good change of crossing above the bull market territory of 200 DMA.
NIFTY cmp = 5190. Sensex cmp = 17,026 ( cmp = current market price) as on 26 Oct 2011 close.
NIFTY 200 DMA = 5430. Sensex 200 DMA = 18,100
Last minute EU discussions and high level details in the 0400 AM press release leading to the relief rally.
It seems this relief rally might last longer more than bears expect. Here is the rationale

Technically - the recent price movement has been very quick and very strong. Yes, we have seen similar 20% - 25% rallies even in bear markets and these bear market rallies generally top out after rally 20% - 30%.
Let us look at some Global Macro Technicals. Since the low made on 5 Oct 2011 ( for some markets low was made in Sep 2011 end ) i.e in past 17 trading days
  • Germany DAX has rallied +25%. DAX cmp 6350
  • Hang Seng is up +21%  cmp 19,688
  • S&P 500 is up +20% cmp 1285 ( +1% above 200 DMA. Even NASDAQ is above 200 DMA. 2738 )
  • Brazil Bovespa is up 23%  (from 8 Aug 2011 low) .cmp 59,270
  • Russia is up 21% cmp 1525
  • US dollar Index below 200 DMA. cmp 75.4
  • EURUSD above 200 DMA .cmp 1.42
  • Risk currencies such as AUDUSD have also rallied sharply +13% to above 200 DMA.  cmp 1.07
  • Commodities such as Copper, Brent WTI Crude Oil are also firmly above their 50 DMA and also above their exponential 200 DMA `s. Copper 3.70 , Oil 94 / 112
  • Many country ETF `s such as Australia, China, France,Italy are up ~25% in this month Oct 2011.Details here
Now India NIFTY / Sensex recent low in early Oct 2011 was 4720 and 15780. As of now NIFTY is at 5200 and Sensex is at 17,288 ( up + 10% from recent low).
A +20% rally would lead NIFTY to 5660 and Sensex 18,900 or ~ further +9%  higher from here.
NIFTY 200 DMA = 5430. Sensex 200 DMA = 18,100
So is this the bottom ? Bear markets generally last for ~ 18 months and average correction is 25% -30%. This time India has already gone through a 25% correction but the timewise correction has been ~ 10 months.
S&P 500 hasnt seen a greater than 20% correction. 
But other markets mentioned above have already fallen 25-30% - DAX, Bovespa,Hang Seng. So yes, price wise the bear market has damage has been done. But still slightly early to say if these rallies will continue beyond +30%. As a trader lets take it day by day. For the shorter term , the trend is definitely UP and would make sense to trade with that flow rather than fight the trend.
Bearish folks ,especially on the EURO, have been sceptical of this rally and kept dismissing it  by saying all this is based on baseless rumors and lack of any fundamental action. Well guess what ? Have you made money ? And as a trader that should be the only relevant question. October  2011 is best ever for Dow and S&P 500 Month to date with +14% rally is on track for best ever since 1974.
Disclosure - No NIFTY trading positions as of now. Might open positions in next 24 hours.

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