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Friday, July 23, 2010

The Sensex closed above 18000 – is it of any significance?

Just in case you aren’t confused enough about why the Sensex is acting coy near the 18000 level, my short answer to the question is: yes and no!

Now, the long answer. The Sensex had surpassed the 18000 mark once in Apr ‘10, and 5 times in the past 9 trading sessions – but all on intra-day basis. Today’s close at 18113 is the highest close in more than 2 years. It should be an occasion for the bulls to celebrate.

The bears will counter that argument by pointing out that the break above 18000 is not technically significant, since the 3% ‘whipsaw’ lee-way has not been overcome yet. The 18500-18600 zone is likely to offer long-term resistance.

The volumes have been gradually waning during the entire pull back rally from the intra-day low of 15960 back in May 25, ‘10. Technical indicators like the slow stochastic, RSI, MFI and MACD are all showing negative divergences. These are not bullish signs.

The FIIs have been buying heavily. The DIIs are selling. Today the net sells by DIIs exceeded the net buys of the FIIs. Still the Sensex moved up. We may infer that the FIIs were buying Sensex stocks. As long as the FIIs keep buying, the Sensex will keep moving higher.

The question is: how long will they keep up their buying? Are they setting every one up for a big sell-off? The Indian economy is almost back on its tracks, and GDP growth may remain on an upward path for the next few quarters. But things are not so great in the US and the Euro zones.

At the first hint of trouble at ‘home’, the FIIs will pull the plug. There is not strong enough reasons for them to do so just yet. Investors should not panic. Just remain cautious and stay invested with trailing stop-losses. This is not the time to be gung-ho bullish either. A great time to learn the virtue of patience.

2 comments:

Titu said...

Hello Sir,

sensex is at 30 month high, and I don't like to buy at 52 week high, but i like a stock NHPC and want to buy it, for next 3 to 4 year.
please guide me by giving your expert opinion.

thanking you in Advance...

-titu

Subhankar said...

Most readers know of my aversion to PSU stocks. If you are convinced about the company's future prospects, go for it.