17,000 :An Electric Fence?

In the past few months a lot of opinions have been thrown around regarding the rise in the world markets. Compared to last year the markets are definitely doing better. In India the rise has been phenomenal. From March we’ve been on a very welcome Bull run. The question which has been asked for quite a while now has been “When Is This Going to End?” ,there are some traders who are ripping their hair out unable to understand what exactly is going on, according to many this is a level that both the Sensex and the Nifty should not be able to sustain.

There is one thought that has floated around quite seriously. India’s greatest investor Mr.Rakesh Jhunjhunwala made a statement a few weeks ago that the current bull market cannot go bust without reaching a stage of ‘blowout’. It’s a situation in which there is a case of rapid buying by everyone, fund managers, FII’s and domestic investors. It’s also a point of view shared by Mr.Madhu Kela, the Head of Equities, Reliance Mutual Fund.

The movement of the Sensex in the past few trading sessions has made for interesting reading. The trend is still green; it indicates that sentiment is still positive and bullish.

Ask a bearish trader about this and he will probably tell you what I mentioned earlier. The current levels indicate that the Indian market has been overbought. Stock prices are inflated and the levels can’t hold for long and will break soon.

Chances are that both scenarios are right but when they will happen is going to be a hard thing to say. As of right now the market is trading smartly. After the Sensex crossed 16,000 it has become range bound.

17,000 has become a point of resistance. There have been sessions when the Sensex has fallen by 200 or 300+ points and the very next day it has rallied by 500 points but when the Sensex does reach 17,000 it seems that the market becomes cautious again.

What I’m trying to say is that we’ve seen big rallies and good buying by FII’s even but the moment the Sensex reaches 17,000 – the volume of buying has shown a tendency to shrink.

In spite of this I am saying that for now the movement of the market is intelligent . Yesterday for example we saw the Sensex rally well. Today for most of the day the Sensex traded in the red. It slipped below the 17,000 level but toward the end of the trading session, it managed to rally and end in the green.

Yes, the close was flat but looking at how the performance was for most of the day you might have thought that even the closing was going to be in the red.

The 17,000 level for the Sensex and the 5,500 level on the Nifty have become like electric fences. Till one reaches that point things seem to go fine. If in the previous sessions the indices have fallen a quite a bit then the market has tended to rally but after it reaches 17K, it becomes circumspect.

So in the long run, the 17K level must be broken if the blowout stage must occur.

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