Sunday, March 21, 2010

Some Correction expected

It was another week of strong gains. Will the rise continue or there would be some correction before the rise continues? Lets try and analyze what could be the next moves of the Market.

1. The RBI announced the a hike of 25 bps is both Repo and Reverse repo rates. Monday, this should have a negative impact on the markets. A knee jerk reaction can take place. Also, the expiry is on Thursday, with the Markets closed on Wednesday due to Ram Navami. This may trap the bulls and lead t take plao long unwinding.

2. Voting on US Health care reform bill is due to take place on Sunday. If the bill goes through, then it involves additional government spending. If the bill fails, loss of face for Obama. This could have a potential negative impact on the markets worldwide on Monday.

3. The NAV of funds for the financial year 2010 falls on 31st March. The Mutual fund managers bonuses are dependent on these year end calculations. Expect the markets to be propped up till then.

4. The breadth has been negative almost the entire week. This means the market has been held up by propping up the prices of heavyweights in the index like Reliance. But, larger market is not moving up which is not a going sign at all.

5. The support lines are as shown in the figure. 5220 is a support for short term, and break of 5065 confirms entire leg of post Feb rally from 4675 is over.

6. As per Jan-march cycle, the market should correct in this period. If this has not happened substantially the there is usually a big fall in May. I would post a study on this next week.

7. Safe bets now would be dividend yielding stocks like VST and Andhra Sugar.

8. The Dollar carry trade is back in fashion. The huge liquidity inflows have led this rally. DIIs have been net sellers in this period. If the dollar strengthens then this rally will reverse.

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