Markets Indicate Distribution
Posted by Sandeep Abbott on January 19, 2008
Stocks Markets have been moving in a narrow band of some 2000 odd points for last 3-4 months. The nature and position of this trading band in the entire run up since 2003 tilts the probability of this being a distibution area rather than one of accumulation . Stocks apparantely are changing hands from the strong ones to the weak ones.
The narrow range movement in Indian markets is also presenting itself in similar fashion in most emerging markets like Brazil, Mexico, Turkey etc. This fact strengthens the chances of all emerging markets being in distributive phases and nearing their long term tops.
The rampant retail participation in secondary and IPO markets further reinforces this inference of mine. Reliance Power IPO led to opening of some ten lac depository accounts in 4-5 days and the IPO generated demand which is supposedly largest ever in the world. This can only be summed as “over confidence” of the participants in stock markets .
This present trading range of the markets (inferred to be distributive range), however, may not directly culminate in to a decline. Most often markets have staged a decent rally post distrbutive phases , to be followed by more severe declines. It may play out exactly the same this time around also. However we need to be cautious, given the absence of “fear” from the markets.
