Bears aim for ‘top kill’, bulls hope for a durable bottom
The short-term top I had called, when the recent market decline started on 15th April, is still in place and looks likely to stay for quite some time. And there are only vague signs that we are about to get a short-term rally. Two weeks ago, as I was writing this column, the Sensex did stage a strong rally—650 points. I had mentioned that the market is not headed anywhere, despite this rally, and despite the fact that global markets had all rebounded nicely. Indeed, the Sensex is at the same level after two weeks of trading. I had marked that rally of two weeks ago as a short-term uptrend. This uptrend fizzled out at the Sensex level of 17,150 the following Friday; the index has given up 600 points thereafter and is trying to rally again.
There is absolutely no conviction among investors. Foreign institutional investors are continuing with their alternative bouts of buying and selling; but, over the past few days, their investment volumes have shrunk. Are they keeping their shrinking powder dry or are they waiting to bolt at every rally? The way the bulls have been ambushed by fierce selling at every rise, especially on the days when the global markets were down, should now make them fearful of the market taking away the gains of last year.
After all, the bulk of ‘smart investors’ has invested after mid-May 2009, when the Sensex was already around 15,000. As the fear of losing their gains spreads, bulls will have one thought uppermost in their minds: who bags the gains first? At every fall, real losses start kicking in. When fearful bulls make an exit in the same direction as confident bears, we know how low the market can go. It’s mob psychology, pure and simple, that happens in the market again and again. On the other hand, for the bears to gleefully enjoy a waterfall decline, they must find ways to break 16,500 and then 16,000—the lines on the sand that separate hope from chaos for the bulls. We have sailed dangerously close to those levels but since the market has so far turned higher, we have no prediction—just a probable scenario to keep in mind.
The only silver lining is that pessimism about the global economy is running deep. This always sets the stage for a snapback rally that seems to have started. The rally may take the Sensex all the way to 17,300. And beyond that?
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