Liquidity fuelled rally continues, but could meet stiff resistance at current levels

The NIFTY’s gravity defying rally continued into the new year. A leading fund manager recently rightfully went on record saying that the central banks are the new “fund managers” and drivers of equity markets!

It’s hard to say when this liquidity fuelled rally will begin to taper, as we continue to be in a “buy on dips” market in terms of technical indicators, despite the index trading at an astronomically high PE multiple of 38X current earnings.

We are quite likely to see profit taking at these levels, and the index could retrace by 500 odd points to the 13,600 mark (20 DMA). If it breaks 13,600, we might see it correcting to 13,200 or thereabouts (lower Bollinger Band). The current level (14,100) is a strong resistance level for the bellwether index.

While sentiment is definitely “risk on” at this point, long positions are fraught with risk. Best to take some profits off the table in a disciplined manner and stagger your way back in after a retracement, that is long overdue at this time.

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