Time for a correction?

If you switch on to any business news channel [CNBC/ET/NDTV/Bloomberg etc] you will most definitely come across analysts suggesting that "a correction in the Indian markets" is coming soon. I am analyzing the same here to whatever extent I can.

Even before I start talking about the Nifty charts, an observation I would like to share - markets like history repeats itself.

The pull back [or the start of a new bull run] that started in March 2009 had a 38% retracement from the highs:

All the remaining 3 corrections we have had since then have been 23% retracements from the highs.






Another aspect to consider is the timing of these corrections. All the above corrections took place within a range 2.5/3.5 months. Now to the prediction part - we have made a new high on Nifty, we have rallied for close to 3.5 months. If we consider only the factors we had for the previous 3 corrections, we are more than due for a correction "Now". Look at the chart below as to where we might stop.

But compared to all other corrections we have had, I see one difference now - Not only experienced analysts, but even a "simple" trader/investor like me is able to predict this correction. Markets are supposed to be unpredictable - right? Well, just the fact that everyone is expecting a correction - markets will for sure do the opposite [I am trying my best to outsmart markets here ;-) ]. Here is what I expect - Markets most likely will make a new high i.e cross 5500 convincingly or atleast make an attempt and then out of no where a bloodbath is going to start :-). We are in a for a sucker rally in the next 2 weeks and probably a week or two before the F&O closing for September we should see Nifty cracking.

BankNifty has made a new high as predicted in my previous post :-) and topped at 11100 [+100 then what I had predicted]. It is trading at all time highs, which is a bullish sign. However, I doubt it's going to head any further after a 2000 point rally and I believe until the next "Big thing" happens for banks BNF should oscillate in this new 2000 point range.

Dow Jones is nicely bouncing from sub 10,000 levels which is going to be a tough resistance to break if at all it goes below that level. Dow Jones seems to have negated the H&S pattern, will confirm this only when 10750 is broken convincingly. If at all 10,750 is broken then forget any sort of correction in India :-).... we will be on our way to new highs [+6300] on Nifty for sure :-).

All in all, get ready to load your Shorts and Puts at the slightest of cracks until then enjoy the rally :-).

-Sri