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The Rally No One Wants To Believe

In the midst of an incredible upmove, the Nifty is at 6110 and is nearly at an all time high (6300+ is the highest). Everyone I know seems to be surprised by the direction. The Nifty is climbing a wall of worry. The standard reasons are all negative, or so it seems:

  • IIP data on Friday was bad, showing a slowdown.
  • PMI data earlier this month was bad, and way under 50.
  • Inflation data today – at 6.46% indicates a rate hike, and while yields have gone up, stock markets have stayed up as well.
  • The US impasse over the debt limit and shutdown continues into its 14th day, but no one is worried – the idea is that they will figure it out. Markets, especially Indian ones, aren’t worried.
  • Foreign flows continue outward in October.
  • Liquidity is tight with over 42,000 cr. in MSF + 19,000 cr. in 7 day repo borrowing.

When markets climb despite bad data, it means that even if one of these points changes for the good, markets will soar. You don’t fight euphoria of this sort, but you stay aware that this is a sentiment driven rally and sentiment is a beast not well understood.

It’s when the last disbeliever becomes a diehard bull that rallies end. But is this one of those? Or are we just running on steam in a low liquidity market?

  • Leo says:

    Wee have seen this before LUNGI swamy 2008 with small crashes als useto recover and now the samething…is happening 3 swings of 1000 up down …
    2 things can happen .One global complacent behaviour will end in disaster .second we will start a new bubble which has no fundamental logic just pump till every short gives up

  • Atiker says:

    “When markets climb despite bad data, it means that even if one of these points changes for the good, markets will soar.”
    If this a widely believed sentiment in the market, then wait for the market to surprise all again 🙂

  • IsItPossible says:

    Unless market takes out all time HIGH with conviction, the rally remains suspicious.
    Few scenarios:
    1. Market makes NEW HIGH on HIGH volume and underlying data such as advancing stocks are lot more than declining, many new stocks should be making all time high, etc will confirm the move
    2. Market makes a NEW HIGH only to trap BULLs but such a move will lack volume as well as underlying data will NOT confirm it. Market will continue to move higher, so that more people try to get in ONLY to find out it was trap few weeks/months later
    3. Market is rejected yet again near resistance zone and continues to remain in range (5400-6300)
    2014 Election results will play a significant role in where markets are headed….

  • Paul says:

    I got stopped out of some October puts! But is waiting for the next opportunity to do more puts. Didn’t have nerve to go long as per my system – Staying out when confused!

  • MadMan says:

    Sentiment-driven rally yella OK, but what sentiment? 😛

  • Guruprasad V says:

    I guess rally might continue. Despite being long, I wouldn’t make big money even if index goes to new high. I’m having hedged position and I believe this could be the reason why markets are going up. There are no longs and if there are those are having hedged position. There might be few intelligent people who might be having naked long but those are minuscule. Overall it is lesson to the traders that markets are not that easy and its not like if there are bad news markets should correct few percentages. This is not that easy. I’d remain long but it would be 100% hedged position because I would never know when the tide would simply turn against me. Overall this is tough market.

  • px says:

    I think people are / hot money is forced by the chidu gang into markets ..Satta rally
    Fd s are not giving 10%PA+ , Gold is overtaxed and falling , Property is a super bubble which shows signs of bursting! Commodities tax and volatility is not every-ones cup of tea,
    Where will one go where he is assured of a quick exit ? markets !
    I agree mkts will not take time falling in big jumps