Bubble of Belief.

In a well thought out report, Albert Edwards, a strategist at Societe Generale says:
“Rallies in commodity prices and mining-company shares stem from a “bubble of belief” in China’s economy that is likely to burst”
“I believe we will look back on the Chinese economic miracle as the sickest joke yet played on investors,” Edwards wrote yesterday in a report. To support his argument, he cited falling earnings at the country’s industrial companies.
“The bullish group-think on China is just as vulnerable to massive disappointment as any other extreme example of bubble- nonsense I have seen over the last two decades,” his report said. “The fall to earth will be equally as shocking.”
Full news item at Bloomberg

My Notes: That is exactly my problem with the rally in India. In last three months, suddenly the economy has become “This time it is different” . It is never different. A slow, steady rally with lot of base building may have set the foundation for a multi year bull market. Instead, all over the world, we had a rally driven by “liquidity”. That is why, I call this move an “up trend” and not a bull market. This one will end, we just do not know when. It could end at 6500, 5500 or even has done its bit at 4700 – no opinion yet.

Comments
Gulshan asks:
“I am regularly reading your blog and tying to follow the same.Now I have a doubt and I think you can answer my question.My question is whether today, the nifty has breached swing low of 4365 or not?Please reply as your Yes or No will certainly help me a lot because I don’t have enough experience in trading.”

My Answer: YES

I mention this one because reading this early morning has made my day.

Vipin says:
Dear Sir,Your early morning positional call on CNBC gave superb returns intra day.Excellent analysis.

My notes: Thanks for taking the time to write. I appreciate it.

Head and SHoulder or Cup and Handle?
Vinod D writes:
In the monthly Charts of Nifty Iam seeing an inverted Head and Shoulder pattern in the making…with the neckline around 4700 and bottom of right shoulder at 3800. So Iam expecting nifty to go to 3800 in the coming months and to break 4700 after 3 to 4 months…If that happens then nifty could head towards 6500. Is my analysis correct…Iam a novice in tech analysis….If iam wrong please teach how to identify the correct H&S pattern if you have time…”

My Notes:
Yes. This is the same pattern which has been referred to as “cup and handle”. The difference will be: the cup requies a shallow retracement to complete the handle. The H&S pattern should ideally see the Nifty slide down to 3800 – in symmetry with the left shoulder. So far I agree with your analysis. But what about the rest of what you write? You expect the Nifty to go down to 3800, why? Why 3800 and why not 3500 or 3150? or, why not 4330? The H&S pattern is relevant only when the right shoulder is complete, and price break out above the neckline. Till then, we watch it with academic interest. My point is: An incomplete pattern does not tell us what the market is likely to do.

Gofi has some interesting numbers:
“1. Nifty has gone UP for 8 months from october lows.
2. Nifty has gone UP for 34 Weeks since october lows.
3. Nifty has gone up for 144 days since october lows to 4600 levels.All the three numbers 8, 34, 144 are fibonacci numbers.
Based on these data, is there any to predict for how long nifty will correct ?”

My Notes:
Sorry. I am not into this kind of analysis. If some readers can answer this, please drop a comment.