Update to structure and certain assumptions that proved wrong
I was thinking that the 10700-10920 area won't be crossed easily. But it was crossed with 2 gaps. And in two days NIFTY is near the 11200 area.
For the last few weeks, I have been putting a structure of rising wedge that does not look valid. There are too many divergences and it is not a clean technical pattern as I like. Hence I am removing that structure and just trying to understand NIFTY with the typical ‘Buy the dip’ structure.
I was also wrong about regime change that I talked about a week before. Market is still in uptrend and showing some different signs, which I’ll explain later in the post.
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Some observations about NIFTY
In the current up move, NIFTY has moved 7500 to 11200, that is 3700 point rise. That is close to 50% in just 4 months.
NIFTY has been rising 6 consecutive weeks.
Reactions to results have been largely over enthusiastic. Example stock like Infosys increased 40%. There has been a stock which has been darling of the investor ~ Reliance Industries showing gain of 13% in a week.
NIFTY price to earnings ratio is 29.35. This is really a roaring bull market in the shortest time.
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Some behavioural observations
Retail participation increased.
There are many ‘Guru’s selling their great services and their clients making money for the last 4 months.
Brokers showing a surge in new account activity and new money is flowing into trading. At the same time mutual funds are having a tough time with inflows.
Many retail participants, who are usually on the long side of the market, are being successful following simple 'buy' strategy
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What is next?
All these indications are pointing towards a situation of some kind of bubble.
Like all bubbles, I do not have idea when this is going to end. This is going to end because this is the kind of situation where no seller is interested in selling. Market always functions on the fight of buyers and sellers and the balance of power between them
It is not possible to catch the exact top. It is also not possible to understand when the market is close to the top.
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What retail traders and investors can do?
As an investor, definitely do not invest in such situations. It is better to stay away from fresh investments. Also for rule based investors, this is the time to definitely change allocation from equity to other asset classes.
It is difficult to short the market at the correct time, and especially in these kinds of bubbles. Because the shape and structure of the top is not really well formed or with a known pattern.
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My view for next week
I feel there are few very important levels, yet to be crossed. One such level I am watching is 11269, 11370 and then 11600. There are chances that NIFTY may show picture perfect reversal at these levels. So it is better to attempt limited risk shorts at these levels.
For reliance, 2250-2350 is the zone where technical reversal is possible.
The chart shows the possibility of breakout which can go to 11270 and 11370 levels.
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My trade plan for next week
Intraday avoid getting short
Avoid short positions which are not at significant levels or naked option sell positions.
Avoid futures
Buy Puts at important levels and be prepared to lose money with it.
To balance the put position, have an intraday long position either through buying calls or selling lower strike puts.
That's all for the week!
I was thinking that the 10700-10920 area won't be crossed easily. But it was crossed with 2 gaps. And in two days NIFTY is near the 11200 area.
For the last few weeks, I have been putting a structure of rising wedge that does not look valid. There are too many divergences and it is not a clean technical pattern as I like. Hence I am removing that structure and just trying to understand NIFTY with the typical ‘Buy the dip’ structure.
I was also wrong about regime change that I talked about a week before. Market is still in uptrend and showing some different signs, which I’ll explain later in the post.
==================================================================================================================================================================
Some observations about NIFTY
In the current up move, NIFTY has moved 7500 to 11200, that is 3700 point rise. That is close to 50% in just 4 months.
NIFTY has been rising 6 consecutive weeks.
Reactions to results have been largely over enthusiastic. Example stock like Infosys increased 40%. There has been a stock which has been darling of the investor ~ Reliance Industries showing gain of 13% in a week.
NIFTY price to earnings ratio is 29.35. This is really a roaring bull market in the shortest time.
==================================================================================================================================================================
Some behavioural observations
Retail participation increased.
There are many ‘Guru’s selling their great services and their clients making money for the last 4 months.
Brokers showing a surge in new account activity and new money is flowing into trading. At the same time mutual funds are having a tough time with inflows.
Many retail participants, who are usually on the long side of the market, are being successful following simple 'buy' strategy
==================================================================================================================================================================
What is next?
All these indications are pointing towards a situation of some kind of bubble.
Like all bubbles, I do not have idea when this is going to end. This is going to end because this is the kind of situation where no seller is interested in selling. Market always functions on the fight of buyers and sellers and the balance of power between them
It is not possible to catch the exact top. It is also not possible to understand when the market is close to the top.
==================================================================================================================================================================
What retail traders and investors can do?
As an investor, definitely do not invest in such situations. It is better to stay away from fresh investments. Also for rule based investors, this is the time to definitely change allocation from equity to other asset classes.
It is difficult to short the market at the correct time, and especially in these kinds of bubbles. Because the shape and structure of the top is not really well formed or with a known pattern.
==================================================================================================================================================================
My view for next week
I feel there are few very important levels, yet to be crossed. One such level I am watching is 11269, 11370 and then 11600. There are chances that NIFTY may show picture perfect reversal at these levels. So it is better to attempt limited risk shorts at these levels.
For reliance, 2250-2350 is the zone where technical reversal is possible.
The chart shows the possibility of breakout which can go to 11270 and 11370 levels.
==================================================================================================================================================================
My trade plan for next week
Intraday avoid getting short
Avoid short positions which are not at significant levels or naked option sell positions.
Avoid futures
Buy Puts at important levels and be prepared to lose money with it.
To balance the put position, have an intraday long position either through buying calls or selling lower strike puts.
That's all for the week!
