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NSE TECHNICALS : Are markets back on track?

This article was posted on Apr 27, 2009 and is filed under Market Outlook

After a long break the stock markets seem to be bouncing back. The indices are climbing up. Over the last one-and-half months, the domestic equity markets have been in the grip of a strong rally. The Reserve Bank of India (RBI) further reduced the key rates to fuel growth. However, the corporate results have not been very exciting. Investors are nervous . What should you do?

Some have dismissed the trend as just another bear market rally which will fizzle out soon. However, many perceive it as the beginning of a new bull run. Risk-taking is back in vogue and investors are gradually regaining their faith in equity.

This puts individual investors in a tight situation, especially those who are still waiting for a decisive market move. A bear market tends to increase focus on the quality of earnings. This puts the spotlight on large-cap companies , which are also the best and brightest of India Inc.

It is the continued public and private investments in the power sector that is driving the production of capital goods. In contrast, in the past, growth was visible across the board. There is, however, a likelihood of a slowdown in investments in the power sector due to the rising fiscal deficit and increasing cost of capital.

The US-based research group Elliott Wave International, believes the recent surge in the domestic markets is the beginning of a long-running bull cycle that could continue for 15 years. The recent upsurge began on March 9 and the Sensex has gained over 2,500 points which is more than 30 percent.

In its report on the Asia-Pacific markets, based on an analysis of technical charts, Elliottt Wave had said there were strong indications of ‘a resumption of the bull market’.

Extending its previous analysis in November last year, when it had said the Sensex might continue advancing for 15 years before the end of another bull run, Elliott Wave said the market seem to have completed the most recent downward spiral in October 2008.

The Sensex had scaled an alltime high of 21,207 points on January 10, 2008 before embarking on a downward journey, where it touched a low of 7,697 points on October 27 2008.

So, what does an investor do?

Long-term investing should be delayed until an intermediate downtrend develops and runs for a week or two. However, existing portfolios should be held on to, as the long-term trend appears to be upwards. The portfolio-building exercise should include buying at lower levels.

This would yield positive returns in the long run. Investors should not dilute their returns by buying at the current levels, or getting out of the markets too soon.

source :Economictimes

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