The absent pied piper

Signs of the rally faltering abound. US had its first negative week in five. The Commodity index (CRY Index) had a large drop last week. The dollar weakening has reduced in momentum. While none of the asset classes have changed trends yet it is clear that the momentum of the rally is waning. Whether this is just a phase of consolidation before we start another leg of the uptrend or a gradual trend reversal is not yet clear. The jury is still out on that one.

With regards to Nifty, I had bought it at 4550 with a stop at 4475. I will stay with that. If we hit the stop, I will get out of the long position but not go short. This is as far as my trading is concerned. But today begins a new week and we need to talk about what the future holds in store.

The stocks that have given the best returns this year include scrips like Jindal Steel (242%), JSW Steel (222%), Tata Motors(196%), M&M(191%) etc are the stocks to watch out for. If there is a trend reversal then they would be hit the most and if this fall is just a consolidation then these stocks could go up the most in the next rally. Whatever be the case, it makes sense to look out for these stocks.

That brings me to the point of the note. What constitutes the leadership of the rally?. The leadership of this rally is filled with those stocks that had been hit the most during the fall. The commodity stocks, auto stocks and as we go down the line banking, real estate and infra stocks. The worst hit during the fall have had the highest return. It is as if the market is telling us that there was no reason to hit those stocks down so hard. That thigs are not as bad as we feared. While I understand that there were excesses during the fall, we seem to have rectified those excesses. Surely we need a theme for the rally to head much further? Without that one underlying theme or story, it is unlikely that we will ever feel comfortable with this rally. We need a pied piper to play a tune that we all buy into for this rally to go further. And at this moment I cannot hear any.

That sounded good. The line about the pied piper I mean. In any case I am still long and will continue to be long until proven wrong by the market. Stoploss for long positions on the Nifty at 4475 and short positions possibly only below 4350.