The Trend is Your Friend

The sustained rally in the Sensex over the past 11 trading sessions has surprised market watchers. Despite rising every single day, the Sensex barely gained 4.6%. This is in sharp contrast to similar rallies in the past when the Sensex gained 12% & 15% respectively.

What does this market rally tell us? It signals a very gradual and steady consolidation in the Sensex. This has happened with limited participation by Private Banks and IT stocks. Now, they seem to be joining the party. But things are still very fluid due to global factors. Any market consolidation must pass the test of sustainability.

The markets tend to rise further when more people join in to participate. They fall sharply if they don’t find follow-through buying. The coming week will settle the direction of the trend in the headline indices. What remains to be seen is how the midcap and smallcap indices react to the broader market trend.

Divergence in trend between these indices and Sensex cannot be ruled out either. The coming weeks are very crucial for the Indian markets as they will become directionally very clear.

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