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Sensex At 24,000: Is It A Good Time To Buy?

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What a week it has been! The stock market rally, anticipating a BJP win, continued right up to the  election results declaration day ie. 16 May. The Sensex touched the 25,000 mark and retreated a thousand points to around 24,100. I generally make it a point to stay away from trading on big announcement days, but last week seemed to be happening in some fourth dimension! We had the charts screaming out ‘Euphoria’ so I broke my self-imposed rule and capitalised on the great opportunity presented in the Options trade.

Take a look at the Nifty chart below. That big red bar on the right denotes the saga of 16th May! FIIs pumped in almost Rs 1 lakh crore into the stock market - that is sure a lot of moolah, considering the FIIs are never gung ho unless there really is a killing to be made on the bourses.

That long wick you see on the chart which goes all the way to 7600 is where Nifty actually ran upto during intraday trading. This is highly abnormal, so speculators sold off their shares to bring the index back to much lower levels. Do also take a look at the red/green bars at the bottom of the chart. These bars denote volume; the longer the bar, the more shares have been traded on that particular day. As you can see the volume really was abnormal – as in above-normal.

It would do well to keep in mind that the financial channels on TV only report what the market has already done and then copy/paste news favouring the ongoing trend. Currently all you will see on the channels is good news. I don’t want to sound like a party spoiler, but the honest fact is that the selling pressure is going to be around for some more time. In other words, the market is unlikely to blast through the ceiling any time during the current week. A moderate selling pressure will  continue as we had seen in the later half of the day of day on Friday, the 16th of May. Almost all of the stocks have run up very quickly and therefore there is going to be a market ‘reset’ phase before the bull run resumes.

Nifty can run up higher, but it will take some time. Take a look at this PE chart [courtesy Craytheon]. You will Another thing to notice is that the current Price-to-Earnings Ratio of the Index is at an ‘average’ level of 20. The faces in the new government will determine how long the euphoria continues. Even so, the markets are going to require a little breather.

What To Expect In The Next 2 Months

What I expect to Nifty Index to do in June is that it will drift sideways with ‘dip’ opportunities to buy. A fall to say 7,000 would be a great opportunity if it happens within 1 month starting this Monday. Thereafter there would be the possibility of a pre budget rally taking place in July. In short wait to buy till we slip lower into the 7,000 area.

Last Week’s Recommendations
IndiaBulls Real Estate:  -4.3 per cent
Asian Paints: +2.7 per cent profit
Bank India: +3.6 per cent profit

This Week’s Recommendation
Cummins India (NSE: CUMMINSIND)
Action: Buy (limit order) at 572, stop loss to be placed at 556. Target for this trade is 600.
Timeframe: 4-6days.

Trade Well
•    Until you become an experienced trader, do not risk more than your disposable income.
•    Risk no more than 0.5 - 1 per cent of your capital per trade by adjusting position size to risk.
•    Profit percentages mentioned in the column are before deduction of brokerage, taxes and slippage. That’s because each broker charges at different rates.

Prateek Singh is CEO, MarketScientist