Sunday, August 26, 2012

Market continues to trade in a very tight range

The markets closed 0.4 pc higher for the week, continuing to grind up. The markets are moving up very slowly led by the front line stocks, Unless there is broader participation, the up move looks a bit difficult to sustain. Let us try and examine the technical and fundamental factors.


Technicals:
1.We are in leg C upwards which started from 4770. C1 was 4770-5348, C2 was 5348-5032. The picture is very clear up to this point.
C3 began at 5032. This up move has extended up till 5448. A rise of 416 points without any meaningful correction.
C1 was 578 points, and hence it is unlikely that this is entire C-3 C-3 has traversed a distance 416 points so far. This could mean this C3 - 1 which is about to end. In this case, we would have a retracement extending up till 5191 and 5240. In worst case it may go down to 5115.

This up move has been slow and grinding. The leg A saw many mid caps move up when we moved from 4532 to 5629.

The rally of the mid caps is still to come which may imply 2 things. This rally has legs to go much higher till 5800-6000 or this is just distribution which is going on.

Whichever way one looks at, it doesn't make much sense buying stocks so close to resistance levels around 5400 levels.

The Strategy should be to buy on dips close  to 5200.

Fundamentals:
1. The monsoons are looking up. Punjab and Haryana which was rainfall deficient has also received heavy rains. Punjab, the farming is irrigation based so the rainfall will help the Rabi crop. The monsoon deficit has reduced to 14 pc overall and looks the worst is behind us.

2. The policy paralysis continues and has been factored in.

3. The Parliament is in session till September 8th and I expect no fuel price hikes till then.

The Strategy is Buy on Dips and stay out of the markets till the dips come.

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