Unanswered Questions Remain!

It is still a big question whether the global economy will return to its glorious past as was in 2006 & 2007. But, stock markets are now quite convinced so and returned to their peak levels of 2007, if not 2008. Many individual stocks have gone even above their life time high levels tested in those years.

Generally, stock markets are the leading indicators and can visualize the future to some extent. However, stock market need not be 100% correct in its every assumption. Even though, there are certain greenshoots visible in the global economy, it is too early to assume that economic life will turn back to its glorious past any time soon.

Hence, it is prudent to be cautious in the future rallies of the stock market. One should take position in equity market only after visualizing the probability of global economy returning to normalcy, the ability of the individual companies to survive unscathed till that time and the earnings of the company once the normalcy returned.

As many would have noticed, Nifty crossed the all-important resistance level of 4730 levels last week comfortably thanks to the surge in giant caps like Reliance, SBI and ICICI Bank. However, broader market did not rally once after this remarkable success was achieved as anticipated by many analysts. In fact, there was a huge profit booking in the smaller stocks even while the giant caps were hitting their new highs for the year 2009.

I expect the same trend to continue in the coming week also. I suggest the traders to exercise caution while picking the smaller stocks which have run up miles since March 2009. 4700 points for Nifty can be taken as a pivot point while taking trading positions in larger stocks.

Wishing a great week ahead!