1. Nifty has rallied approx. 3615 points since low of March '09 in these 18 months ,out of which approx. 38% or 1365 points is since June '10 series i.e. in last 4 months !!!.
2. The P/E ratio has crossed 25 level after Sept 20th. This figure of 25 has been crossed only twice before in Jan 2000 and Oct 2007 !!. Markets have extended to 28+ levels on both these occasions ,in fact they have traded above 25 levels for three months both times. Clearly we have entered the bubble zone now. This alerts us not for a mere correction but probable reversal of the ongoing trend,going ahead in near future.
3. Last Month's Nifty futures open interest had also reached record high volume levels ,though this can also continue further ,but such high volumes at new tops are not sustainable for long . Similar Volumes were seen In Jan'08 and April'09 periods which proved to be trend reversal times.
4. Medium term Indicators are all in overbought zone since crossing of 5500 levels.The rise has been without any significant correction.The same is with deviations of Moving averages from their means.
5. As per probable EW count we have entered the Fifth and final wave of this upmove. The extended fifth wave can generate a euphoria and make people feel having being left out of rally and then entering at new highs. The prices and news are all bullish with significant new targets given by analysts in media,with optimism at extreme. These are typical characterstics of the Fifth wave which traps most retailers.
6. This phase is for booking out systematically of the previous long positions. If no positions are held then should trade light. Refrain from shorting at each new high till a clear signal emerges ,this will only prove to be Bull fodder and fuel the upmove at each short covering rally. Money management and Position sizing are the important mantras to be practised now because the correction to unfold will be fast and vicious ,any wrong move will be a trap resulting in significant losses. Going forward one should trade with strict stoploss and follow discipline in any method he/she is following.
Please trade with caution ahead.