The pessimism in the current environment is widespread and it seems that a counter trend risk rally is in the offing. After watching today’s price action I am having a gut feeling that we have seen an intermediate term bottom and hence we can see a substantial rally for short term.
I will advise everyone to exit short with stop loss 1 -2 % below current lows. Stop loss for Nifty will be around 4700 and for Dow would be around 10500. Aggressive traders can also go long on Index with stop loss 1 -2% below current lows. I think some announcement for Europe is long due which may spark at 10 -15% rally in all risk assets.
I will prefer to buy the following risky assets in the following order.
&l European banks
&l European stock index
&I Nasdaq 100
&; Dow and S&P500
&; Nifty and Asian stock index
&; Copper and crude oil.
I will keep stop on all of them 1- 2% below the current low. I think the risk here is around 3% while returns can be in the range of 10 -12%. DXY can substantially correct and dollar can weaken. I also expect the correction in price of Precious metals to continue.
This rally can last anywhere form 1 - 6 months and is a sucker rally. People will feel that the worst is over but the next wave of selling will emerge once the risk rally is over.
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