Technically where do we stand?

The rally from 7893 has taken everyone by surprise and where does it go from here?

1. The rally has retraced the fall from 8968 to 7893 in faster time. This indicates it is an impulse wave started from 7893.

2. The rally has consumed 9 weeks so far.

3. If it is a fresh impulse some decent correction is due as a form of consolidation before the up move resumes. Lower levels are 8724, 8567, 8437.

4. I have plotted the rise as a 3 wave corrective up move but more likely it would play out as a 5 wave impulse up move.

The 1st wave was very clear 7893-8461, 2nd wave corrected till 8327, third to fifth wave is not very clear so I took the rise as an a-b-c rise.

Either which ways a correction to 8724 seems to be on the cards. There are negative divergences playing out.

A secondary possibility is this is A B C corrective up move and we may revisit 7800. Now all these are just numbers how does one invest based on them?

Buy 50 pc of intended quantity between 8500 and 8700. The broader market is showing signs of correction.

Fundamentals - Where are we?

In the 6 months since September we have fallen about 1000 points on the Nifty and have risen back almost the same amount. Is the fall justified and also the rise?

Let us look at the reasons:

1. The Trump factor - The major reason for markets tanking was the Trump factor and it has played out so far. Jobs back to the US and closed door towards immigrants along with H1B visas is going to be negative for emerging markets.

2. Further rate hikes in the US. As Janet Yellen speaks of rates hikes sooner rather than later it means that the emerging markets become less attractive for FIIs. Jan was a negative month for FIIs and Feb is positive mainly due to mad buying in HDFC Bank.

3. The Politics factor - As the reports come in, it seems more and more unlikely that the BJP will win UP but it can emerge as a single largest party. The problem for the BJP is the untouchability factor. Like the Game Theory, BJP and the Samajwadi combo will never support each other. Mayawati knows to extract her pound of flesh and even with lesser number of seats will expect to be CM with outside support from BJP. Punjab seems to be a lost cause with Goa too close to call.

4. Rate Cuts - The RBI is clear it is done with rounds of rate cuts. So steroids for the economy cannot be expected from the RBI.

5. Demonitization - No one has seen the tangible benefits so far, they may come further down the line in terms of tax compliance. The loss to GDP needs to be factored in. GST also will lead to a spike in inflation.

On the plus side, we have a stable government in place, borders are stable and General elections far off.

The month of March is important for US rate hikes, reforms linked to UP elections and what meausres Trump rolls out. It has been a good 3-4 months for the markets those who bought in December, their portfolios have risen a good 20-30 pc. Time t be cautious.

I strongly feel we will get 1 buying opportunity in March to May period.

Possible Triggers for the Markets

All the major triggers have come and gone for big moves in the markets. The few visible triggers let us try and see.

1. RBI policy on 7-8 Feb
A 25 basis rate cut s factored in, anything more and the party continues, anything less and we correct.

2. Election Results on March 11
AAP seems to be ahead in Punjab, and UP is no longer a cakewalk. UP is especially significant, any reversal here will lead to markets falling.

3. Donald Trump Actions
This is the wild card here. What people feared when he got elected is coming true now. The bigger problem seems that his actions seem to have a lot of backers within the US. Trump poses the biggest risk as he may force reversal of funds from the emerging markets.

We seem to have reached the upper end of the markets here and at least a correction before we take out new highs seems likely.

What the markets needs to correct is a trigger. Let us see if the above 3 factors act as a trigger.

We are in a resistance zone and clearing it will lead to next set of resistances are 8850-8900.

Time to wait and watch.