Sunday, July 11, 2010

No Trading Zone!!!

Sensex, Midcap, Bankex, IT
Sensex is still hovering around its previous top near 18000 levels
We said in our previous blog that wait for 17100 levels to be taken out before initiating any position
Sensex did move down a bit only till 17400 and in form of a downward flag (a small bullish pattern) to give a breakout on upside
We do not rule out the possibility of Sensex taking out the previous top near 18047 marginally before turning lower
Currently we are in "NO TRADING ZONE" as shown in today's chart
We see that Midcap index is making a new top, Bankex and IT index are behaving similar to Sensex
Reliance a major index mover is moving in a triangle pattern for almost a year now no where near the top whereas Infosys is at life time high
Metal index is well below its previous top made a few months back whereas Auto index is at life time high
Global markets: DJIA, FTSE, Nikkei, HSI , moved down in 5 waves pattern and are now correcting upwards whereas Sensex still stays near its highs
This scenario is very similar to what happened in Jan 2008, the world markets started correcting steeply but Indian markets kept on moving in upward direction only to realize in mid Jan that we cannot move up alone in isolation to world equities and we finally CRASHED!
Whenever the Indian markets do things that is dichotomous to world markets the theory of Decoupling, Domestic demands & Growth comes into play for justifying the movements
But just be cautious we are in times when correlation is high during turning points but the magnitude of movements may differ
MSCI Asia pac index is already down for the year similar to that in Jan 2008 and we crashed approx 18 - 20 days after Asia pac started moving down in 2008
I will not be surprised to see that same scenario if plays out again, I will not be surprised to see a crash in Indian equities within next 2 weeks, I will not be surprised to see Sensex make a new high of the rally that started in early 2009 before the melt down.....
To Conclude: NO TRADING ZONE till we see a move below 17200 - 17100 levels. Going long is way too dangerous given the Risk Reward ratio & the global scenario!!!