Sensex Rally of 2009

Our market is witnessing a very strong rally from the beginning of March 2009 and the Prime mover of Index of Sensex and Nifty is by the PosterBoy of Indian stocks “Reliance Industries Limited”. When RIL makes a strong move, the sentiment of our market completely changes to its direction of movement.

Today many of us have moved there perception from extreme Pessimism to overwhelmed euphemism.But i will tell you markets have mind of there own.

I am taking a contrarian view of the market, and I am quite sure this market should top out soon between 3850 – 4000. It is not new to stock market that bear market Rallies are very sharp and powerful and convert many of the even seasoned traders into bullishness.

Technically speaking, bear markets tend to retrace by 38.2% of the previous year range, and going by the parallels of the empirical evidence, Nifty should retrace to around 3800 ( which is 38.2% retracement of last year range of 6336 and 2228 which are high and low of the year 2008) But the crowd of technical analysts will be gunning for this figure of 3800 and looking for reversal to happen but market may take them for a ride and make further upmove by 150 to 200 points, may be closer to 4000 level or may be it can reverse from 200 points before ie. from 3600 Levels and convert everyone into complete bullishness for still higher targets.

According to me, no Bull market is born without a huge consolidation after a severe bear market and this is not going to be the new one to defy this historical evidence. Every bull market needs a strong base formation of a very long period may be around couple of years and this time also it will happen with certainty.

The very first impediment of this rally to advance further would be around 3500 level and if it is conquered without much of an effort on closing basis for a few continuous days, then it will further move to 3950 to 4000 level and eventually topout. One needs to be very careful in plunging into market at this hour in investing their hard earned money in market.

Reliance Industries was the prime mover of Index in the last one month and stock has moved from Rs.1140 to Rs 1775 in a month’s time. The stock is very closer to 38.2% of retracement of last year range and it comes to around Rs.1825 level. There are few index stocks which has to catch-up with this rally to make this logical retracement level and till such time, majority of other index stocks participate, RIL will not topout and sharply come down. To support the other stocks making its logical retracement, RIL can stay float for some more time above 1825 to 2000 and will finally give-up for bears to takeover the market.

Adding fuel to fire for this rally is, prominent Institution Elliot wave International views about Indian stock market entering into 15 years bull market for SENSEX target of 100000 is flashed in many of the websites and many traders who by their bullish nature jumping into this market buying the view of EWI.

The quality of stocks which are movingup this market excepting Reliance, doesn’t even give the credence of bull market and it’s a clear sign of Bear market rally. If we look at the past history of Bull markets, in the first leg Midcap and small cap will not participate to a greater extent and will not generate cent percent returns in a very short time period of less than a month’s time as it is doing now. The first wave of bull market is always ignored by traders and small investors due to lack of conviction and, we always find only two sets of people in the market fully invested during that move for a long term creation of wealth viz, smart /seasoned investors and Institutions. Today we see all types of market participants in this rally. All these prove, this rally could not be a beginning of Bull market.

Readers of my view, please understand that I am giving my view of market getting toppedout soon is based on technicals by drawing the evidence from the past history of market behavior. As market is overheated now, the trigger for this fall could be the announcement of Parliament Election results.

And when we look at Nifty chart, it moves in a cycle of making intermittent high and low once in two and half months. This cycle of uptrend also comes to end by May 2009 second week and in all probabilities I think, elections results could trigger a topout of this rally.