Bears on prowl

The sensex has finally shown some clear weakness after defying global trends for many sessions. The support at the top of 7th February 2007 (14562) was breached with a clear gap and the sensex did not cover the gap during day’s trading. This shows clear weakness in the market.

However, charts have not yet formed any clear trend reversal pattern. We can expect the markets to bounce back before completing a trend reversal pattern. The bounce back is likely to start from near the trend line levels of 14300 (or slightly lower levels). Normally, such a rally should touch upper trend line around 16500 (depending on slope of rise). But upper trend lines are never sacrosanct in upward trend and bounce backs may falter much before that level. It would be wise to leave some gains to the market instead of trying to squeeze out every point from the rise.

However, any show of strength should not be taken immediately as continuation of bull market. Rather it would be advisable to use new highs as opportunity to exit risky stocks (with high beta). It will be safer to have only conservative stocks in once portfolio till there is a clear signal.