I expected the dow to go upto 10,351 if 10,190 was taken out and on the lower side 10050. However, both targets missed by just 20 odd points.
The upside target achieved and breached. Now I expect a down move to retest maybe 10,050-10,120 levels before the next leg up to make a higher high and lower low on the dow. My concern is that the rally has been on thin volumes atleast on the dow.
Commodities have started to rally oil has even breached the previous high it made on 5th may after the bail out announcement. Copper is still lagging but getting there.
AUS USD a measure of risk has been going up, EUR USD has been moving up. However the cause of concern is the volumes.
Nifty now has entered in a zone where it is fundamentally one of the most expensive markets in the world. A P/E of around 22 with a book value of 3.76 and a dividend yield of 0.98% this is alarming. As everytime historically when P/E breaches 23 and dividend yield on index falls below 0.9% we witness a correction. So a maximum upside to 5400-5500 level makes market extremely expensive and very risky however, this doesn't mean that we cant rally further. This expensive indicator signalled bearish on nifty last time on 27th Nov 2007 and remained bearish for the entire rally uptil 6000 on nifty till 8th Jan from where we started falling and correction came. However, the market became very cheap on 27th october 2008. I have used this tool on historical data and it has been able to predict a top or bottom in the market with considerable accuracy with a downside risk of maybe 5-7%.
However, if the global markets keep rallying nifty will rally too whether it is expensive or cheap it will follow the global trend. The best bet would be to look for fundamentally cheap stocks also showing some technical rebound now. That is my aim.
So according to the P/E valuation system and dividend yield when it falls below 0.95% or less than 1. I got first correction major one on nifty in the current bull market on 16th and17th October.
The second one was from 24th December up until 20th Jan it indicated markets were extremely expensive.
Then again from 17th March until 3rd May markets became very expensive.
Now again markets are entering that zone where earnings don't support the nifty price. But it doesnt mean current rally cant go on it can because it is based on sentiments. For the bull market to go longer I would expect a correction in it not now but soon before the begining of next year or early next year. A correction of maybe 30%. That would bring the P/Es and Book values down.
This is just a fundamental view. As American market is very cheap fundamentally and can rally a long way.
Australia, India, Japan, Brazil, Russia are worlds most expensive markets relatively.
Also if dow holds the current level of 10,350 for couple of days next target would be 10,700 which I expected to achieve in early july hence i believe, there might be a leg down still.
Nifty is looking bullish and is rallying continuously for past week and a half.
My only concern is the last 2 bars on the nifty the volumes are huge compared to previous day but he spread is very low. This maybe a sign of distribution. If nifty would have been in a down trend a complete opposite bar signals absorption but here it looks to me more like distribution. This is just my view and I maybe wrong. Distribution can takes months so markets can still rally. I just believe there is more bang for the buck and value in other stock markets such as China, Brazil, USA, UK, etc than in India compared to earnings potential. Economic growth wise and long term India is and will be one of the safest countries to invest long term though.