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Charts & Analysis

Is The Market Looking To Rally?

With this month having seen a big fall, and markets looking very haggard, are looking to see a big rally? I use an indicator – the net number of stocks above the moving averages (Net = Number above minus number below).

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In the short term, the Nifty looks oversold, with the indicator looks like it’s turning up but beware that the recovery may be very short term. The last time we were this out of whack the index did move up sharply but resumed the downtrend to end even further down.

(The graph accounts for Nifty changes – so prior to April 2012, when Reliance Power and RCOM were part of the Nifty, it uses their 20 DMA and prices, and after that, their replacements – BANKBARODA and ASIANPAINT)

In the longer term – looking at the 50 and 200 DMA, there is no real recovery evident:

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This is not even oversold territory, to be honest, except for the 50 DMA curve that looks like it’s going towards the negative 40s again.

Still, a bounce may just happen, since global macro news has been so bad. We haven’t heard any news of another quantitative easing, and "unconditional" support for the Euro, and unlimited money being thrown at a problem created by too much money. Oh, don’t bother with judgements – if the market says go long, you should just go long.

(Like in Facebook’s case, it’s not yet telling you so)

I’ve been long a strangle (4800-4900) and I would like to trade long using calls, perhaps for June instead of May. But it’s highly risky at this time, since I don’t see many other signals that seem to be moving long.