India Market: Exciting Opportunity or Another Bubble? |
I'll admit when I am wrong. I did not believe the Nifty would have the strength to break the 5800 level. I also believed that the markets were showing a bearish continuation pattern that I highlighted in a previous article. However, as a trader, I am more than willing to let go of my opinion and trade what the markets are showing me rather than what I think should happen. This allows me to easily overcome small losses and replace them with hefty gains in trading or investing.
The current rush to break the supply levels may have something to do with international investment. The Foreign Institutional Investors (FII's) are beginning to start their purchases in the Indian equity markets again as the appetite for risk is gaining. I have been in Singapore for the last week and in my appearances on CNBC Asia television, I have heard many people discussing the excitement for the potential of equity investments in Asia (minus China and Japan) as well as India.
Looking at the FII numbers, you can see that they tend to be lagging in the trends. They were eagerly buying well into the last peak of the market in November 2010. However, the smarter mutual funds were shifting into debt instead of the overbought equities. We are currently experiencing the same scenario.
Figure 1
Figure 2
The Nifty broke the prior supply levels and is currently (April 7th is when I am writing this) testing the broken supply as demand. The current FII purchasing has the ability to cause the Index to see out the next supply level at a prior demand between 5993 and 6068. If we are to remain in the overall bearish trend, this level would have to hold as supply. We may not even get to that point as we are testing a downtrend line that formed from the November highs. I would exercise extreme caution in the upcoming trading sessions as there is risk of a large correction.
Figure 3
In all, the institutions are not always the smart money. They can be subjected to the same emotions and greed that plague individual traders. Stick to your own individual analysis and do not be stubborn in holding an opinion of the market. Your money will last longer that way!
Have a great day.
About the author: Brandon Wendell / Online Trading Academy
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