Is Market on the verge of a fresh break – out?

With Nifty again crossing 5100 and sustaining there for two days, market is excited about the possibility of a break out beyond the current trading range.

Though momentum is strong and it is quite likely, yet we feel that any break out at this stage is unlikely to sustain and should be used as an exit opportunity for short term investors. Our reason for skepticism is based on the following concerns:

1)      Markets have doubled in value over the last 8 months – Though they rebounded from extremely low and pessimistic levels, yet after the run up they are on the expensive side. Though GDP numbers have surprised everyone but concerns of rising inflation and growth momentum slowing once the fiscal benefits are withdrawn remain. Moreover International Economic Scenario is still far from encouraging. The Dubai crisis has amply demonstrated that any adverse development on the global front can send shivers across all markets, with India being no exception.

2)      Consolidation will prove very healthy for long term stability of the current bull market – A break out from here will result in a euphoria which might prove to be very harmful for investors. After the stupendous run up over the last few months it is better if we have a few months of correction or sideways movements. That will be boring but will prevent irrational exuberance from steeping in. Also it will allow investors who have missed out on the rally so far to join the long term bull party.

So though chances of an immediate break out are high but for the health of the markets we hope that this break out happens not now but after a couple of months of consolidation.