Tuesday, May 11, 2010

A (FALSE) sharp rally! Globally!

Sensex



Explanation

Sensex moved up by more than 500 points in single day!
Globally there was strong rally in markets like Italy, Portugal, Greece - up by around 10% each, UK up by ~5%
Rally of this sort is only a sign of emotional moves. This only indicates volatility going to be increasing in coming days and the gap is nothing but an exhaustion gap.
Unless and until Sensex exceeds 17700 levels we look at this structure as a 1- 2, 1-2 formation which shall carry prices lower very soon
Expect some type of consolidation in next 1 or 2 days before this current minute rally is over and then prices start moving down in major trend
Alternative Scenario: This is only an a-b-c correction and another leg up to new high is still pending. This is an alternate scenario and carries low probability. But any move up by more 300 points from here will make this a preferred scenario
Trade Safe: Lot of emotions get into play when markets move with such high volatility and we tend to make an impulsive trade. We realize our mistakes only when we have lost significantly. Yesterday's move will surely have triggered Stop Losses of many traders and execution of trades on stop loss is a MUST! There is no place for emotions in this market and you will be doomed if you do not adhere to your Risk and Money management strategies

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