:: State of the Market :: Deepak's Persepective on Market

As a Technical Analyst and a trader, I am trained to believe what I see on the screen. I have no business to ask - "Why prices have moved up?". I have to just accept the fact that prices have moved up and trade accordingly. There is no doubt that market is showing more strength than weakness and more and more sectors are now participating in the upmove. On Friday, even Autos joined the upmove bandwagon.

But is this a good news or bad news? The way different sectors are participating in the rally or falling off (like FMCG, Oil and Gas, Health Care) - it appears that the current upmove in Nifty is more of a catch-up game with Global markets, than real rally because of local factors. There is no clear leadership in the market except Technology sector. One week a particular sector looks good, and the very next week - it goes out of favour. It is this aspect of rally which a trader should be little careful about.

This can be shocking news that India from being one of the most sought after market last year has become a market which is just doing catch-up game with strong up moves in global markets. One of the reasons why this has happened - Once a technical momentum gets broken in a market, it is very difficult to build it again. And generally to rebuild momentum - you need a strong fundamental reason which market has failed to get so far. On top of that, worsening inflation situation coupled with confused policy making has made matters worse.

I am not trying to find a fault with current rally. There is a saying - the most bullish thing a market can do is to go up. But as a market observer, I thought it's important to get your attention to this fact - the market needs sustainable legs to rally and that's what is missing right now. The market desperately needs clear leadership - a leadership which is backed by both fundamental and technical reasons

Global markets negotiated resistance levels very well last week, and closed comfortably above them on weekly basis. The data points have also been supportive be it economic data or be it Corporate results. Friday was no different. According to Labor Department, US economy lost just 20 000 jobs in April much lower than estimates. The figures reduced the fear about the health of US economy. The market rallied on the news but enthusiasm faded away on news of S&P ratings downgrade of Countrywide Financials debt to junk. The downgrade clearly came as a jolt to the "worst is over" belief. Technology stocks also lost little bit of momentum because of lower than expected results from Sun Microsystems.

More market analysts are now embracing the fact that Global markets may show more strength than weakness in coming days. This is what Colin Twigg said in his market analysis - "The Dow Industrial Average reversal to a primary up-trend has now been confirmed by the S&P 500. Expect a test of the 2007 highs at 14000. While the market is recovering, this is more a function of cheap money than a booming economy — the old maxim still applies: Don't fight the Fed. Milder than expected employment losses may hint at a soft landing, but the housing market collapse and resultant credit squeeze are likely to plague the economy for some time. Banking, housing and other cyclical sectors should be treated with caution"

Today most of the Asian markets are up strongly on strength in commodities. A measure of six metals traded on the London Metal Exchange, including copper and nickel, gained 2 percent, with copper jumping 2.3 percent. Markets in Japan, South Korea and Thailand are closed for holidays

Nifty is slowly and steadily inching up, though it lacks momentum. Friday's action cannot be called very bullish considering market closed below its opening price. On a closing basis, the Nifty moved up 62.3 points or 1.21% to close at 5 228.20. But Nifty closed 36.8 points down as compared to the opening quote for the day. Nifty May 2008 futures closed at 5253, at a premium of 24.80 points as compared to spot closing of 5228.2.

Though on weekly basis, Nifty did very well. It closed above key moving averages. The probability now points to more strength than weakness in coming days and weeks. Technically, the next probable target is 5368. This is the same level at which Nifty formed double top last time. The level of 5368-5400 is also 50% retracement of the complete fall from Jan 09 highs to March 18 lows.

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