Sunday, May 31, 2015

May turns out to be Positive

At the beginning of the month, I had said, very rarely there are 3 months of consecutive decline and if 2 months are negative the third month is almost always positive or flat. The markets performed true to that dictum and gained 3.1 pc in May.

1. The GDP numbers came in good on Friday. The RBI policy is set for Tuesday. If no cut, then expect a very sharp cut in the markets. If there is a 25 basis points cut then expect a small rally. There would be a big rally if there is a 50 basis points cut. This seems highy unlikely at this point of time.
My favorite scenario at this point of time is a 25 basis point cut. As a reaction, markets will rally and then peter off as had happened in early March.

2. The monsoons are yet to hit the coast of India. This is precisely the reason why the RBI will not have a 50 basis point cut.

3. The markets have reached 8433 and there are multiple resistances between 8500-8600. In fact it is quite likely the markets will make a short term top within the first 3 days of the month of June.

4. There are 2 schools of thought, 1 is markets will go straight up from here or there would be a dip first and then a rally. If there is a dip, then 7500-7600 comes as a logical target and that would be a great buying opportunity.

5. Yesterday, I read an article which made great sense. It states that every 2 years there is a 25-30 pc cut in the Sensex and Nifty levels. This has happened at least for the past 10 years. The last major correction was in August 2013. If this substantial correction happens and since we are in a bull market a 20 pc cut would lead us to 7300.

6. I expect the markets to eventually top out at 10000-12000 on the Nifty within the next 1 year. This means every dip right now is a buying opportunity.

The trick is to buy Quality stocks so that even if the markets fall, these stocks can be averaged. There were 2 big events lined up. First were the GDP numbers and the second is the RBI policy. Once these are out of the way, then the monsoons become the next key trigger for the markets.

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