Thursday, May 16, 2013

Is This the Right Time to Buy Stocks?

Stock prices in the Indian markets have been rallying for 20 days now including today. And this rally today was to be expected after the sharp correction that we saw on Monday. But this much??? No, the quantum of the rally was unexpected. There was resistance near 6040 and then at 6090 and it crossed both effortlessly. The Nifty opened with about a 20 points gap up and made no effort to fill the gap, crossed both the resistances and still continued to rise to finally end the day at a high with a gain of 151 points to close at 6146. 

As always happens with Euphoria, people tend to get more euphoria-tic. A talk of the Nifty reaching 6900-7000 have already started doing the rounds. I even heard wild theories of the Nifty touching 7800 or even 9600 in the times to come. And all at a time when "yours truly" is still expecting his target of 4300 to come. Now, only time will tell who turns out to be right. Euphoria is good for me. It is only when people become more and more bullish that the bears start to take control. It is only when the Bulls start getting complacent that the Bears snatch it away from them. Our job is to be on the right side of the market, to trade with the trend. And the trend now, without any doubt, is up. For how long, is another question. A lot of my readers would be thinking that if the stocks continue to rally like this and this does turn out to be a bull market then, surely, they will miss the bus if they do not 'jump in' now. Well, as mentioned before, I would say that this does not seem to be a bull market because the symptoms are not such. But the market can prove us wrong too. It surely can, but even if this is the beginning of a new bull market, this will also have to go through the customary corrections. And it will give us a lot of opportunity to enter. Today's close means that the market has risen 12.3% in just a matter of 20 days, virtually without any corrections. And that is a big rise in a bear market and a correction has to come in sooner or later. It is just that we are not getting any big negative news to trigger a correction. 

As far as my Elliott Wave Analysis of the market is concerned, it is a matter of discussion for another day. Even though it did cross the previous high of 6111.80, I still have hope. We still are in a primary bear market, at least till the time the 2010 high of 6338.50 is not taken out. I'm not trying to make a point that this is not a bull market, it may very well be, but looks unlikely. My point is that new bull markets take time to build up whereas it is generally the bear market rallies which are sharp and give us a false sense of hope. My point is that a market which has risen 12% in 20 days would be quick to fall at the first sign of a negative news. And since tomorrow is the 21st day (a Fibonacci number), we may see a (maybe short-term) top being formed tomorrow, as per the Fibonacci Time Zones. A correction could bring it down to 23.6% retracement at 5988 or a deeper retracement of 38.2% could bring the Nifty down to 5890. And if we are lucky enough we could even see a pullback to 61.8% to 5732 levels. Even if it does not fall to that level and I see the bullish trend continuing, I would be more comfortable buying after the pullback is over than now (even if I have to buy a few points higher than what it is today).

Those who think they will 'miss the bus' need not worry because the markets would definitely see a pullback. One must exercise caution when 'jumping in moving buses' because it can lead to accidents and injury. It is wise to 'jump in' when the 'bus slows down' and I am waiting for just that time. Any signs of recovery after a retracement to one of the levels mentioned above should be bought into. Stop loss at the moment will remain 5475, at least till the time we do not modify it as a trailing stop loss. The markets are testing our resolve to stay away, making us repent that we stayed away from a rally that lasted 20 days but this is the time to remain patient. We must have the patience to stay away till we see a pullback. Remember, patience pays.

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