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The Nifty has made a significant chart pattern today which suggests that the Market is poised for a big move – up or down. The pattern does not predict the direction of the move, but a big trend is likely to com , that is almost certain.
The pattern is: A narrow range day combined with a DOJI. The narrow range day suggests indecision in the market, neither the bulls nor the bears could move the market much, keeping the market in a narrow range. The DOJI suggests – you got it – indecision, where the open and the close for the day were nearly the same suggesting that neither bulls nor bears could move the market in their direction.
Now, this state of equilibrium is not going to last for long. Either the Bulls will have it, or the Bears. Short term traders should go with the winners in this skirmish. An easy way to follow the leaders is to buy above the highs of today – above 4185, or sell below the lows – 4115, whichever event happens.
Early warning on how the market may behave will be available tomorrow morning when Infosys announces its Q1 results. The stock price has gone up from 1250 in April to 1800 currently, in anticipation of better results. If Infosys guidance is not optimistic enough the market may not like it.
This is my second post for the day. Just below the post that you are reading is the first post : The Nature of bear market rallies.
Nature of a Bear Market Rally
Bear Market rallies are sharp & vicious. This happens for two reasons. First is the bears who are caught unawares at a suddenly developing rally. They rush to close their short positions which fuels the ally even more. Second is the undying optimism of the masses. Every time there is an up tick, the retail trader thinks this may be the start of another super bull market. He then rushes to buy, hoping to catch the very lows.
Eric Roseman, blogger, (http://rosemanblog.sovereignsociety.com/2008/07/bear-market-ral.html) says: Bear market rallies tend to be awfully convincing. Previous bear market rallies from 2000 to 2002 resulted in big single-digit gains for global stocks. But gains were savagely cut as investors eventually headed for the exits at the same time as the economy deteriorated until prices finally bottomed in October 2002. But by then, the MSCI World Index had plunged more than 50% from its March 2000 all-time high and the S&P 500 Index more than 40%.
More cheer comes in from News Corp. Chief Rupert Murdoch who Says He’s `Very Bearish’ on Economy as food and energy prices rise for consumers. . Bloomberg.com quotes him : “Every country in the world has serious food inflation and then of course you’ve got the same thing with energy,” he said. “It’s really squeezed.”
Bloomberg again. If you want to know how capitalism committed suicide read this: http://www.bloomberg.com/apps/news?pid=20601039&sid=a11PeBn6TV8A&refer=home
What is Fannie Mae and Freddie Mac ? These are two companies in the USA which are the biggest providers of financing for U.S. home loans. Something like the State Bank, National Housing Board, HDFC & LIC taken together, only much bigger. Both these comapnies are now bankrupt since they have more laibilities than assets. It does appear that the American Economy has more downside left as new problems crop up.