Saturday, September 19, 2009

Markets: How high can they go?

The Markets keep rising. All the prophets of doom and gloom are decreasing. The bears have gone into hibernation.Happy times are here again.

Lets check out the fundamentals. Domestically, the things have improved definitely. Forget the IIP numbers which are overcooked by the government anyway. I look at the Auto Sales numbers as a key measure. Maruti is producing at peak capacity. They are now only constrained by Production limitations.
Indian IT companies are again bagging orders. The freeze is beginning to thaw. Domestically, things are beginning to look bright. My sense is that the next downward trigger will not come domestically unless its a Mumbai style Terrorist Attack. This time, India will not be expected to give a muted response.
Globally, things are seemingly looking up. The US and so the world markets are at new 2009 highs. It seems pumping in cash has done the trick. I will keep a watch at China. They are often the leading indicators of things to come. It seems a dichotomy that Chinese Markets are tanking when Global Markets are partying.
How does China become so important?
They hold a large amount of US Treasury bills, they are largest purchasers of US debt and FIIs for BRIC countries look at China for direction.
The US data looks towards a stabilizing of the job markets. The rate of decline has reduced.
The nifty has gone up 6.75 % in September. This has primarily been due to FII inflows of almost 8000 crores. DIIs have put in just 800 crores. The Party will continue till liquidity keeps pouring.
The FII or the so called smart investors often so a herd mentality. When they stampede towards the exit they do not give an opportunity to exit.The Nifty is at a P/E of 22.31. This is historically where it takes a dip to at least 19.

So what should you as an investor do?
If you are already invested and looking to book profits, keep booking at every rise of say 200 nifty points or keep a trailing stop loss of 20 EMA which stands at 4777 as of yesterday.
If you want to invest money look for dips to buy. Again, one could look at dips to 50 EMA to buy which comes to 4601.

Remember, if the crash comes it will be swift and brutal. So, you will know that it is not time to enter.

The markets had come 50 EMA levels last around 18-19th August, nifty 4353 which was a buying opportunity.

No comments:

Post a Comment