Surprise Rate Cut may not add strength to markets.

Interest rate cuts as a means of improving stock market sentiment are not particularly successful. After the NASDAQ crash in 2000, Mr Greenspan begain his policy of rate cuts. While the cuts did improve sentiment for a few days, the bear market continued. In India, we have seen two cuts in October 2008 and big declines following the cuts.

Governments cannot change market sentiment by order. The market is a very democratic instrument. Markets change direction when a majority of the participants change their view. This change of view takes place on the changing market environment, not by government instructions.

Follow the Momentum

Short term Momentum is now in favor of the bulls. Traders should leave aside their preconceived ideas, and, follow the momentum. Thus, buy on dips, breakouts, with proper stops. Take profits on range expansion. On gap opens, follow the first 15 minute rule. These are the basics of technical analysis, and, they make money.

The base is the beginning of a bull market

In my previous post, I described Mr O’Neil’s ‘Reversal Day’ theory and how it identfiies the start of a bull market. I also said, in my final notes: “I have not done any research on such inflection points. The base building process is my signal, that will take its own time. “

Now, my point is: It is possible that 2252 may have become the lowest point of the bear market. Maybe, another decline could stop at 2300 ? Or at 2700 ? Therefore, Mr O’Neil’s Reversal Day theory may well work out, even as the market consolidates for months.