Wednesday, April 7, 2010

The Last Leg of the currrent upmove?

The current rally started from 4675 on Feb 8, reaching 5400 today (April 7). So, today is some kind of an anniversary for the rally - two months. In 2 months, the Nifty has rallied 725 points, which is 15.5%. If the Index continues to gain 15.5% every two months, then the Nifty will double itself to 9350 by next february.

It is fair to say that this is unlikely. Not impossible, but very unlikely. This means that the current rate of gains is unsustainable. We can assume safely that there will be serious declines as well as consolidations in the Nifty. But when? We do not have an answer to this question. Therefore, we follow our charts on the trend, even when we understand that the trend is likely to reverse sooner or later.

The trend is up. A short term reversal can take place if the Nifty closes below 5350 (These are my numbers, you may have different levels and both of us can trade successfuly on our levels). The intermediate trend changes to down if and when the Nifty closes below 5250. Our strategy is to buy on dips. We are protecting our investment portfolio by buying 5300 PUTs which cost a little but ensure a reasonable amount of safety.

Have Fun!

1 comment:

amit said...

Thanks for again highlighting the breakout dilemma. As for buying puts to protect investment portfolio, please throw some light on which NIFTY puts to buy (strike price how much below spot, which month/quarter) and how much of the portfolio (take for eg Rs 25L/-) should one hedge. Thanks again for your valuable and sincere advice.