Bear Rally?

The Nifty has rallied smartly in the past few weeks from a low of 2525 on 6 March to 3687 on May 16. The media is glorifying this by saying this is a 46% increase. A few points regarding this:

1) If something falls from a high like say 6000 to 2200 any rise above that from 2200 will be a huge percentage gain. But it is still a huge drop from the 6000 levels
2) There are very few "lucky souls" who bought at 2200 levels when the market was gripped with fear
3)So is this the start of a bull amrket. if one were to do a simple Fibonacci Retracement Analysis from the high of jan 2008 to the fall to 2228 on 27 October 2008 one will observe that 3800 levels is a 38.2% retracement of the fall.

A bear market is characterised by strong rallies. 30-40% up moves are very common from the lows. Only time will tell whether this is a bull market starting or a bear market rally. As a day trader, frankly I don't care. But my advise to traders and investors is to be careful and always have your stops in place.

The market is a beast

Someone once said the objective of a bull market is to advance as far as possible without any people getting in. A bear market falls as low as possible without many people getting out. The typical investor gets interested in the market at the top of every bull trend and get scared out at the bottoms. Also at the beginning of a bull market most people are traders. At the top they were all investors.

This is the reason 95% of people lose money in the market.

Buy-and-hold doesn't work except for a lucky few.

Question: How do we make money then?
Answer: Short term momentum trading using Technical Analysis

Nifty continues its upward momentum

Nifty Futures is in an uptrend, closing the day at 3652. This uptrend started on 20 March when Nifty was 2768. Is this a bear rally? Not an easy quetion. Nifty faces huge support at 3200. If it breaks 3200 it will be a downtrend. Obviously this 3200 figure will change with time.

This recent rally reinforces the need for a stop loss. All the traders who were short on the market without stops are now facing margin calls and still hoping for a test of 2200. Only time will tell if that will happen but the message is "protect your capital". Keep your stops in place.

Socionomics

Major stock market trends mirror the ups and downs of society’s overall mood state – or social mood, as it is termed it in the new science called socionomics. A rising (bull) market indicates improving social mood, while a falling (bear) market signals that society’s overall mood is worsening.

Of course, social mood as the driving force behind stocks, economy and cultural trends turns the conventional idea of causality completely on its head. For example, it means that investor confidence doesn't follow the trend in the stock market; instead, stock market trends follow investor confidence. News doesn't create stock market trends; social mood determines both the character of human events and the trend in stocks.

The entire article can be found here:
http://www.elliottwave.com/freeupdates/archives/2009/04/30/Swine-Flu-and-Elliott-Wave-Analysis-Updated.aspx