Oversold Markets will Bounce Back.

The Nifty had witnessed five days of declines in the last six days. The nature of markets is mean reverting, to some extent. After substantial declines, a rally of some kind was expected. This rally came today, on the back of the largest ever decline in the American markets.
Markets will continue to surprise us. There was no impact of the American meltdown. Instead, what we saw was a classic bear rally, sharp and swift, taking most participants by surprise.

Does today’s rally change the picture ? This question comes up rather quickly. The answer is, NO. Markets will go through cycles of optimism and pessimism. Today’s rally, surprising as it was, may be taken as part of a reaction to a lot of pessimism.

The Nifty faces strong resistance around 4150 approximately. The Index should close above this level to start the process of a possible bull market. Let this event happen, then we will review the position afresh. Till then, we assume that any up move is a bear market rally.