Sunday, November 11, 2012

Three Possibilities for the Markets

Obama has been re-elected, 1 major event out of the way and also the Q2 results have been declared and done and dusted. The markets were down by about 0.2 pc (Nifty) last week and now 3 distinct possibilities exist.

The markets made a significant top at 5815 and has been correcting since then.
5815 - 5583
5583 - 5777

The above has been the flight path of the index.

This path tells us that there are 3 distinct possibilities.

1. The market is still correcting the rise from 5216-5815 and we are in the last leg down in which case we have a target from 5450-5525.

2. The market completed the correction at 5583 and the final C-5 poised to take us to 6000-6200 has commenced and we are in the corrective second wave of such an advance.

3. The market has already topped out at 5815 and we begin the long slide towards 3700-4000 before the next bull run.

So, what are the points of negation of these probabilities.

Below 5623, option 2 is ruled out that we are correcting the rise from 5583-5777.

Above 5750, option 1 is ruled out.

Below 5350, option 3 comes into the picture.

So, how does one play the situation now.

The safest option is buying on dips. Some quantity to be bought between 5625 and 5675. Add to this between 5450 and 5550.

Alternately, one can wait for 5750 to be breached by which time the prices would have risen.

I would give the 3 probabilities, following % chances of coming true:

1. Wave C-4 continuing till 5450 - 5525 (40 pc)

2. Wave C5-2 in progress till 5625 (40 pc)

3. Major wave down till 4000. (20 pc)

My assumptions are based on the parameters that euphoria is yet to be seen in the markets signalling a major top.

The problems of the world are still not yet solved. We are not yet done with the bear market started in Jan 2008.

Wish everyone a Happy and Safe Diwali.

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