Saturday, September 11, 2010

Lurking Nifty

Nifty has run up from 4806 (closing 25 May 2010) to a level of 5576 (closing 6 Sep 2010). This is a net gain of 770 points equal to 16% in 4 months!!!

This is a stellar performance for Nifty. In the current zone there is no specific resistance seen since Nifty has not traded in this range for more than 2 years now! This could take nifty to levels beyond 5700, if liquidity and buying continues.

Nifty has strong supports @ 5450/5400/5350. The recent bounce back remains a major support area @ 5350. Below which nifty can correct up to 5250/5150 on lower side.

With Nifty PE trading in excess of 23, it surely seems overbought to me. We are sitting on the second peak ever.

However, the excess liquidity has been keeping our markets rallying. Also, since most world markets have not matched our performance, India and China have been attracting huge foreign funds, hence the out performance.

This situation can be compared to the one in Sept-Dec 2007 where the only direction for the market was up. And then all of us saw what happened from Jan 2008.

Well, if one was to see the past, statistically, Nifty has traded for just 18% of the time at a PE of 21 or higher. The current PE is 23+.

Back in 2007-2008, Nifty PE actually reached 27+ in the mad frenzy and this is how markets are. World over markets are predominantly driven by sentiment and logic is only looked upon in hind sight.

Well, to keep it short & straight, this is the time to take your money and run. This is my personal opinion and I do not seek any agreement from the readers. But for me, this is no buying time and I would rather choose to wait for a better day.

I may be absolutely wrong in the above analysis. However, this is my perception about the current scenario based on the past data. I have tried my best to keep any sentiment out as I write this.

Take it as you like. You have a choice.