The positive triggers keep coming to negate the effects of dismal news on any front to ensure that hope is kept alive and the markets don't go into a downward spin. In the last week of October we had said that the OCTOBER LOWS WILL HOLD IN NOVEMBER AND DECEMBER and the rally will continue till the second week of January 2009. We are now into the fag end of December and there is no danger of the lows being violated. The breadth has been good and there has been a lot of insider buying at lower levels. We expect this rally to continue upwards till 10th Jan 2009. The higher we go, the more dangerous it will become.
- Liquidity seems to be easing and interest rates are coming down.
- Inflation is going down as demand is evaporating.
- US has bailed out its auto firms for the time being.
- Japan has cut interest rates and is pumping funds to capitalize its banks.
- Indian government is releasing its stimulus package in instalments.
- Oil price has cooled off again despite OPEC production cuts. This is a big plus for the Indian Government because it has taken away the oil subsidy burden off its head for the time being so that it can take care of its other commitments.
- Rupee is appreciating and that is aiding investment flows into the markets.
- Obama is planning on a huge $850 billion stimulus package and also planning efforts to avoid 3 million job cuts.
The earnings for the current quarter will be pretty dismal. The outlook beyond that for the next few quarters is still uncertain and gloomy. This means that we will definitely see another fall, which could test the earlier lows, after the current rally has matured fully by pricing in all the positive news.
A lot of people are now turning bullish with targets ranging between 12K to 13K. The peak for this rally will be at a point when it almost makes you believe that the bear market is over and a bull market has begun.
So be careful not to get caught in this rally!! It is a bear market rally.
Vivek Bhargava
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