Home > Uncategorized > MARKET NOTES: How far will this rally on the Sensex go?

MARKET NOTES: How far will this rally on the Sensex go?

 

MARKET NOTES:  How far will this rally on the Sensex go?

 

 

 

This post should be read with the last post on markets.  This adds some more detail to the comment on the how I see the Sensex playing out this bear rally.  In particular, how the rally can extend much beyond what I projected.  It doesn’t mean I would chase the rally from here.  This is merely a reminder to trapped bears that there is no easy way out of this one.

 

 

 

CNX Bank Index:  In terms of time, the bank index drop from its top at 13,229 has to 8,000 has lasted almost exactly the same period as the fall from the top of 10,780 in January 2008 to the bottom at 3340 end March 2009.  Yet, relative to the trend line from bottom in September 2009, to 3340 in March 2009, the bank index hasn’t fallen all that much in terms of price in this correction.  While nothing dictates the index should test this trend line, the correction in bank stocks has been relatively shallow.

 

On the other hand, in an alternative wave count, starting from the bottom 748 in September 2001, to the top at 13,340 in November 2010, the banks have had a humongous bull run spanning 8 years.  In terms of wave counts, this Bull Run yields a complete set of 5 waves.  A fairly long correction in bank stocks is therefore in order.

 

Assuming, the current rally is a corrective to the fall from 13,229 to 8000, the bank index rally can stretch till end March, or even June.  Where does that take it in terms of price?  The index has a minor overhead resistance at 11,400 followed more overhead at 12,000.  Given the need for the index to spend time in this region for a while, a spike above 12,000 can’t be ruled out.

 

Overall, while not bullish on bank stocks, if a bull, one should keep ratcheting up the stop loss.  The time to play bear is definitely not now.  Early bears are easy meat in such rallies.

 

 

 

CNX IT Index:  represent the real joker in this rally that could surprise bulls and bears alike.

 

A simple wave count from the top of 7574 in January 2011 to the bottom at 5100 end August the same year, represents a corrective down wave that is being offset buy the up move from that point to date.  It’s been a jagged but orderly up move.  Wave A up, a full blooded two part wave B down and we are into wave C of the up-move that can last till march end and in fact also extend.  Given the time element, and the performance in A and B of this up move, the previous top at 7600 looks easily attainable.

 

Note what I said about the NASDAQ in the previous blog post.  We have a confirmed breakout on NASDAQ after 11 years and that has sometime to run in the US markets.  Very likely, as in the past, our universe of tech stocks will start tracking the NASDAQ as has happened earlier.  In which case the rally in CNX IT Index has the time and the structure to run for a while unlike the bank stocks above.  Can the tech stocks carry the entire market?  Short answer is yes.  They have done so in the past.  That is one reason to disaggregate my views on the Sensex this week.  Tech stocks can spring a surprise on the index as a whole.

 

 

 

Telecom Stocks:  There is no telecom index in the market.  So using a proxy for it.  Bharti made a top of 563 in October 2007 and has since been correcting for its entire bull run from September 2003 to October 2007.  Counting the down waves in several different ways from the top of October 2007, the correction in this stock is completed at a level of 320 in September 2012.

 

Ironically, the stock is actually correcting downwards.  Telecom stocks could turn on a dime from current levels.  They have always tended to be correlated with tech stocks.  Hence the time for some fairly sharp break outs in telecom stocks could be nigh.

 

Warning.  This is not, repeat not, a recommendation to go out and buy telecom stocks.  The attempt here is simply to see which stocks in the Sensex or nifty COULD sustain this rally beyond the normal that one would expect in a bear rally.  Telecom stocks make good candidates.  That’s all.

 

 

 

CNX Pharma:  Pharma stocks tend to be contrarians in most markets. India is no exception.  They are however not stocks one trades.  They are mentioned here only to assess their impact on the index since they are contrarians.

 

Pharma stocks have had a phenomenal Bull Run spanning from April 2001 to December 2011.  In the immediate past, a huge surge in the stocks led the rally from 1968 on CNX Pharma in April 2009 to December 2010.  The stocks have paused to correct from that perspective.

 

The first leg of the correction has taken the stocks from 5200 on the index to about 4400 at the end of August.  We appear to be in the corrective wave up that could time with the current rally in the markets.  So Pharma stocks may well move with the markets but are unlikely to lead or lag significantly.

 

 

 

NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.

 

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