Before I get into the prediction, a word of caution for readers. In trading, we should always make an attempt to predict the market, however this process is just 25% of our job. Most of the times Markets don't move as we have predicted. So the key to be successful in stock markets is to be highly flexible and reactive instead of being rigid - in the sense, if the market goes against your prediction be ready to go with the market and stop fighting with it :).
Analysis of Nifty:
Above you can find the daily chart of Minifty. I extensively use Fibonacci retracements for predicting the Nifty levels and I feel Fibonacci retracements works pretty well. If 61.8% level of 4950 range[+/- 20] is breached, I would look in to the weekly chart of Nifty below.
From the above chart, the likely stop for this downfall could be 23.6% retracement level which is 4745 range. Nifty has a habit of retracing to 23.6% before continuing the trend [which is upward in this case].
Reasons why I believe the markets are going to only get stronger [Until US Fed increases interest rates]:
1. Between Nifty 5400 and 6400 there is hardly any resistance area. So to cross the 5400 level we need a lot of good news and confirmation that most of companies are beating their earnings estimates [most of the companies revenue is already above 2007 market high levels].
2. Markets go up only when FII's invest. FII's never buy at higher levels. Their usual tactic is to "Short" the market at higher levels, get it down and buy at lower levels - precisely what's happening now.
3. If the monsoon is going to be at the right time, from this May F&O closing, you will see huge inflow of FII money into India, creating a huge rally in equities. Monsoon news impacts - Banking, Autos, Consumer durables, Reality, Infra, Fertilizers and many more sectors. However the IT stocks and export oriented sectors might take a beating because of rupee appreciation.
So, this is the prediction, let's see what surprises market has in for us :).
-Sri
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