The Nifty index has rallied from 6220 levels to close to 6520 levels now during the 5 trading days this week. Nifty has not just hit a new all-time high today, it has rallied over 100 points after crossing the previous high. Several large-cap stocks have gained more than 5% today & over 20% in the last 5 days. But what is noteworthy is that despite such huge rally in large-cap stocks, the Advance:Decline ratio is close to 1:1, i.e. the rally is broad-based. Hence this is a warning sign.
I am a bit skeptical of this sudden rally we have seen this week. Since it is focusing on a limited number of sectors & that too only on the large-cap stocks, we need to keep caution while deciding to trade hoping for the rally to continue this way for more days. I think this rally is being driven by foreign money which is here for short trade, not here for longer term. The logic behind this thinking is: As a long term investor, a fund manager would love to buy at lower & lower valuations. He wouldn't suddenly jump into buying in a way that will drive up the prices at such frantic pace. And he wouldn't even jump in when the prices are moving up in this fashion. This kind of movement is generally seen only when short term trading money is driving up or down the prices of only a basket of stocks. Traders are the ones who would love to create euphoria in the market in such a way that others also start jumping in and then they can book their profits.
All I wish to say is that those looking to invest in the stocks, shouldn't buy during this rally. Just wait for some time, things will cool down or stabilise. There is no point in suddenly investing in something which has already appreciated over 20% or 30% in a matter of just 5 days. Traders on the other hand can make a killing in this kind of environment, but it could also burn someone if things cool down as quickly as it has heated up. That's why I would like to caution everyone.
I am a bit skeptical of this sudden rally we have seen this week. Since it is focusing on a limited number of sectors & that too only on the large-cap stocks, we need to keep caution while deciding to trade hoping for the rally to continue this way for more days. I think this rally is being driven by foreign money which is here for short trade, not here for longer term. The logic behind this thinking is: As a long term investor, a fund manager would love to buy at lower & lower valuations. He wouldn't suddenly jump into buying in a way that will drive up the prices at such frantic pace. And he wouldn't even jump in when the prices are moving up in this fashion. This kind of movement is generally seen only when short term trading money is driving up or down the prices of only a basket of stocks. Traders are the ones who would love to create euphoria in the market in such a way that others also start jumping in and then they can book their profits.
All I wish to say is that those looking to invest in the stocks, shouldn't buy during this rally. Just wait for some time, things will cool down or stabilise. There is no point in suddenly investing in something which has already appreciated over 20% or 30% in a matter of just 5 days. Traders on the other hand can make a killing in this kind of environment, but it could also burn someone if things cool down as quickly as it has heated up. That's why I would like to caution everyone.
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