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Liquidity drives the market

posted by Nishit_Vadhavkar on Sunday, February 5th, 2012

The markets are rallying based on FII outflows. The FIIs have pumped in about 13000 crores in this year itself. Where do the markets head out from here? Let us try and find out.

1. The markets made a high of 5335. This also means the correction from 6339 is done with at 4539. Now, for the long term there are 2 possibilities. First is a fresh bull market has begun. If that is the case, then this is the first wave up.

2. Another possibility is we are having a A-B-C correction from 6339. Leg A was 13 months long and about 1800 points. Wave B could 6-8 months and go up to 5650-5700 range and then a wave C to test the election gap. If this is the scenario, then we are in a range bound market with the rang being 4500-5800.

3. The current rally is about 800 points old and about 34 tradings sessions old. It should terminate at about 5400. The supports would the be 5028, 4933 and 4838. The markets would turn bearish only below 4700.

4. The gilt funds have given good returns in the past 3 months and it is clear that interest rate cycle is peaked.

5. For the short term, the supports are at around 5200 and resistances at 5400.

6. The Supreme Court judgement again raises questions over governance in India. Fundamentally, the markets have no reason to rally except for liquidity.

7. In both the cases, a fresh bull run or a retracement rally we are due for a decent correction of 300-400 points. 5000 will be a good support for the markets.

Nishit Vadhavkar

posted by Nishit_Vadhavkar on Sunday, February 5th, 2012

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