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Every meaningful rally, and every bull market, starts with short-covering (which is why making short-selling illegal is counter-productive; without short-sellers, you have no buyers as no-one is there to take profits). Thus, explaining that the current rally as nothing more than ‘short covering’ may not be quite fair to the market.
The Nifty has gained 27% over five weeks, suggesting a “buying stampede”. Such stampedes are only interrupted by 1 – 3 day pauses/corrections before resuming. This is what has happened this time around. We are having “running corrections” where the markets correct for just a few hours, intra day. Such moves should typically last about five weeks. With a number of trading holidays in the last week, maybe this will overrun into a sixth week. But, a process of consolidation seems likely.
Then, is it a bear market or the ‘real bull’ ? If the rally continues with more weekly gains without a consolidation, it is likely to be a bear market rally. If we see a deeper correction, we could easily be looking at ‘something different’. Rather unuusal, but higher could mean lower, and lower could mean higher.
More later!
Is the Investor Angry ?
I receive a fair number of comments which say in effect “the rally is rubbish!”.
Maybe. But who are we to challenge the market ? The Market says, I am going up. This message is coming clearly in the charts. Now, traders who are suspicious of this up move can stay away from the market. That’s fine. But there is no sense in complaining about the rally. There is no sense in fighting the market. Believe me. I have been there and done this. At the end, the market will do what it wants. My complaints will not make any difference. Or it will make a difference, but only to me. It makes me angry (because the market refuses to do what I say it should) , thus blinding me from trading opportunities and losing my focus. Not good.
Now, I often publish news / comments from analysts which suggest that the bear market is not over. This is important because we should be aware of both sides of the picture. But awareness is one thing, we trade only on price.
Solo wrote:
“I have noticed a “doji” formation in the nifty daily charts,which all of us know that it is a trend reversal signal.I want to know that what type of confirmations are needed now to believe that the uptrend is over?Also is my eye catching it right to notice a rising wedge formation in “Nifty futures”chart and also in some global markets like “Nikkai” and “Dow”.”
This was an interesting question. In reply I have a new post “The DOJI as a reversal signal”. I have not answered the question because I hope that readers will be able to find their own answers with some help from this post. If you need clarifications, please send your comments.
For the rising wedge: I could not locate this pattern on the Nifty futures chart. A rising wedge should come when the market goes through a rally after a steep decline. The narrowing of the range (through the wedge) tells us that this is a bear rally. While this pattern is not visible on the daily and weekly, such a pattern (wedge or flag – bearish) may be developing on the monthly. Too early to tell. Perhaps I missed the pattern ?