Sunday, October 30, 2011

Markets: Have they given a breakout?

It was a news filled truncated Diwali week. Diwali is over and now is the time to look ahead. Lets try and see what possible road the market takes ahead.

1. The RBI policy as expected hiked rates by 25 basis points. The fine print was that Savings Bank Interest Rates have been de-regulated. This has potential to erode the profit margins especially of large private banks. Yes Bank immediately offered 6 pc Interest rates on Savings Account. This is a drag on the private sector banks.

2. Europe crisis has been averted by the Private Banks taking a 50 pc haircut on their loans. If it was Greece alone, then crisis would have been averted. What happens when Italy and Spain default. Politically it is a master stroke by China. They have agreed to give funds but the first losses would be borne by the European governments. China's role as a World power has gone up several notches. This development heralds the shift of political power towards Asia. Earlier, China was an economic power, now political influence follows.

3. Our markets have filled the gap at 5350 - 5215 and this was broken by a gap up. This is also known as Island reversal provided there is follow up buying. We now run into a wall of resistances around 5400 - 5500 with 5470 being a key resistance on multiple parameters.

4. The crisis has not been solved, its only delayed. 5450-5500 also represents the trend line joining the tops from 6339. This should be taken out on a weekly basis, to herald a fresh bull market.

To Summarize, we are in a powerful bear market rally. Only a close above 5500 on a sustainable basis would foretell a fresh bull market. We are just 150 points away from a breakout. We wait and we watch on the sidelines.

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