Markets are at their 15 months high . Retail investors are back and I am sure you must have got the left out feeling by now , as markets have gained more than 100% in last 6 months . What shall one do now , Shall we invest for long term now , Will markets go up or down . Trading is Probability and hence we shall take our decisions based on probability only . Lets see what are my views on current market conditions .
People who have just started in Stock market should have a look at my “How a beginner should start in Stock Market” Ebook .
Current Situation of Stock Markets
Markets have crossed important levels of 4850 before some days and have been stable there for some days .. Once it crosses 5300 , which is another important level , I would be very much bullish then and will be willing to agree that markets can again see the all time high of 6000+ in another 1 yr . See the chart below . Click to Enlarge .
Source : icharts.in
Above is a 3 yrs weekly chart of Nifty . If you see the chart below you will see that another important resistance is at 5300 and you can also see some good negative divergence on ADX . This gives an indication that we must be cautious at the moment .. The upside might be limited to 5300 , from where it can take a reverse turn . But , As you must be knowing , markets are supreme and hence if it sustains that level . We will have to obey its order and remain bullish . You should have a look at Deepak Shenoy article on Nifty P/E and EPS growth some days back .
What about Nifty PE ?
As of 21st sept 2009 , current Nifty PE is at 22.40 . Now this kind of number is not show very attractive valuation for long term . Below is the chart of nifty PE for last 3 yrs .. you can see how its has crossed important zone of 20+ and now heading to 25 which I personally consider as “SELL at any cost” level at the moment .
Even though High nifty PE of 22 does not reflect great valuations , it can be used as short term indicator for catching some momentum move . So I would love to buy right now to get out at 10%-15% profit in another 1 month or so , or till market reverses heavily . But I would not like to make some long term commitments right now at this level , Better wait than never .
So what are the Possibilities
- Markets can reverse now anytime before touching 5300 levels
- Markets can sustain 5300 levels and then see 6000+ levels from where it will crash again
Conclusion
This post is just trying to see where we are and not trying to entice you to do trading , trading is a personal activity and can be done in many different ways . Where is will market go is a trivial question , the more important thing is “what will you do when market moves in any direction”
{ 8 comments… read them below or add one }
Bit dangerous form of investing. I don't know if I have the guts to react that way to market movements. If valuations are cheap in any stock it is worth a buy even now for long term. at least that is the philosophy I am following. How are you selecting your stocks for 10-15% returns in a months frame? would make an interesting read
@Sumi
the best of investing or trading is totally personal . so if you think you can identify and buy for long term .. you should go with it ..
My comment is for Index (nifty) and not for a particular share ..
Regarding 10% gain in a month or two . Its mainly because of momentum . with PE of 22 . I thing there is good chances market can move up if it move up and then cool off ..
Manish
a great presentation.
PE lookup makes pretty good sense.
@Anonymous
Thanks
. I hope you have read the other articles with nifty PE analysis 
. Did you like it ?
Manish
Manish,
Good article! We always need sane voices like yours to caution unsuspecting retail investors who get carried away by irrational market exuberance.
@suryadeep
Yeah .. Most of the people take their decisions based on what others are doing and because every body is like that , the markets become very complicated
Manish
what nifty P/E level is better to buy for medium term to long term?
Raju
Fabulous information… Just loved the way you have explained the situation.. Keep posting please!