Experts differ if current upmove qualifies a breakout

Markets built on the stellar gap up start and closed the day at a six-month high. It was an across the board surge led by heavyweights and sectors like realty and metals. At closing bell, the Nifty stood at 3,211 up 151 points, while the Sensex closed in style at 10,357 up 455 points. Markets closed with smart gains of 3.5% for the week. Also see: Nifty ends above 3200 on strong global cues; Realty up 9%

 

Shashank Khade, Vice-President, Portfolio Managment Services, Kotak Securities, said today's upmove does not look like a breakout for markets. "This entire upmove happened on the back of a couple of events that are clustered together. The G-20 meeting is now progressing. There is also a final vote-on-account (VoA) on the mark-to-market (MTM) accounting. All this has boiled up sentiment substantially in global markets. Indian markets, being a slave of the global markets, will behave in the same manner the global markets rally up or down."

He feels markets have got carried away by the momentum in global markets. "Today’s rally reminds me of the last four months of 2007 where momentum was the way to go. One needs to wait it out and understand how events pan out in the next couple of weeks or days before taking aggressive incremental equity investments as one could be looking at equal upsides and downsides in equities."

Khade cautiones that if rewards are going to be fast and swift, the punishment is also going to be the same if global markets were to rally down. "Most global markets from the first week of March onwards to now have rallied substantially and are clearly ahead of earnings season, which is going to be pretty weak. We are precariously poised globally and more importantly in India. We are not going to have great amount of positive surprises after such a rally has taken place at the pace at which we are going."

"If one were to look at 8,000 to be a base, then 12,000-12,500 would be the upside on a most optimistic case. The risk rewards are not as great as one wants it to be and clearly the downsides are pretty large if one's call goes wrong. I would be a bit cautious and guarded rather than blast away at these sort of levels."

According to him, pessimism was a sure sign of the rally continuing further but investors are now beginning to buy. "The most important foundation for the rally was pessimism, which was at a high in the last couple of weeks. Nobody wanted to really look at an opportunity to make money out of these markets, as everyone was in a capital protection mode. But right now we are seeing people wanting to invest and having courage to probably incrementally invest. I am not sure whether it is a great sign but pessimism was a sure sign of the rally continuing further."

 

However, Sudarshan Sukhani of Technical Trends feels the upmove in the market looks like a confirmed breakout despite Monday's scare. "We had a very small, but significant five-day trading range and we thought we are going to go into choppy waters. But the trading range was there and there was a pause after that upmove, whatever little that was.

It would be fair to say that this is an inflection point. There was a time when investors could invest at 2,600-2,700 and that was with the understanding that they could go lower. But it was a low risk area. Now, this is not a low risk area, but it is a very high probability, strong momentum area."

He feels investors looking to invest thinking that the markets have moved up can invest another 200 points later. "For traders it was always a buy on dips or a buy market for sometime now. This is a small window of opportunity for investors as well." However, he was quick to caution that everything can go wrong.