It was the epoch of belief, it was the epoch of incredulity . These words of Charles Dickens aptly capture the mood in Indian and US market as the Nifty and the Dow Jones Industrial Average scaled the 10,000 and 22,000 marks respectively.

One section of global investors are of the opinion that the rally will sustain, supported by the continuing flow of liquidity, while the other section is crying hoarse about rising valuation and predicting an impending crash.

The Dow has been racing higher since the election of President Trump in November last year, gaining 23 per cent, to move past 22,000 last week. Initial part of the rally was driven by hopes of large infrastructure spends and massive tax cuts, but despite the lack of progress on these fronts, stocks are continuing to surge. Market experts are of the opinion that earnings growth is not good enough to support the rally and stock prices are moving far beyond their fundamental worth.

Sentiment was similar in the Indian market when Nifty scaled 10,000. Macro growth numbers have been quite dismal, implying that the economy could go through a rough patch in the June and September quarters of 2017. Corporate earnings are also unlikely to be robust till then. A large part of the rally in July is purported to have been spurred by the SEBI directive to P-Note holders to unwind P-Notes on derivatives bought for speculative purpose and rising valuation is making even the ardent bulls uncomfortable.

While market experts are fretting and wringing their hands, the trading community appears quite sanguine. This is reflected in the CBOE VIX, the US market’s fear gauge, hitting 8.8 in July. The India VIX too fell to 9 recently, mirroring its US counterpart. The surge of global liquidity, despite the Federal Reserve’s resolve to begin monetary tightening soon, appears to be leading to this complacency. There is a consensus developing in the global markets that the next fall has to be triggered by an unknown event, for all the foreseeable risks have been priced into stock prices.

Trading or investing in such uncertain times is far from easy. The supports of 30,000 in the Sensex and 9,100 in the Nifty should serve as the base that investors need to watch. As long as these hold, the medium-term up-trend will not be under threat.

Investors will keep an eye on the progress of the monsoon over the next few weeks. It has been normal so far this year, barring some regions in the Southern peninsula, especially Karnataka and Kerala. Foreign portfolio investors have brought in close to $8.6 billion in to the equity market so far this year, supporting the prices. Inflows into debt have however been far more copious at $18.2 billion.

Nifty 50 (10,066.4)

It has been a stellar run for Nifty so far this calendar, with positive monthly closes in the first seven months.

Short-term trend: The short-term trend in the Nifty continues to be up despite the minor dip on Thursday. Immediate supports for the index are at 9,900 and 9,785. Short-term investors can continue to buy in declines as long as the index holds above 9,785. Next support is at 9560.

If the index manages to take support from 9,900 and move higher, it can move on to 10,256; 10,477 or 10,800.

Medium-term trend: The targets for themove that began at 5,118 are 10,826 and 12,354. If we look at the minor break-up of the waves from 6,825, we get targets at 10,036; 10,854 and 11,360.

The medium-term supports for the Nifty are at 9,300 and 9,120. If the Nifty manages to hold above 9,120, a move to 10,800 looks possible in the next few months.

Sensex (32,325.4)

The Sensex managed to hold above the 32,000 level last week and the short-term trend in the index continues to be up. Short-term supports for the index are 32,020 and 31,652. Short-term investors should not buy stocks on decline below this level. Next support is at 31,000.

If the index holds above 31,652, it can go on to 33,312 or 33,815 in the near term. The Sensex has achieved our first medium-term target of 32,335. If the rally sustains, it can go towards the next target of 35,070. We stay with the view that the medium term trend will stay positive as long as the index trades above 30,000. Next medium-term support is at 29,250.

Global cues

Most global markets have had a good run over the past months. With global growth getting less volatile, and signs of growth revival in Europe, sentiment in stock markets have been largely upbeat. The CRB index that hit a low in the first week of July has been trying to revive, reflecting stability in crude oil and other commodity prices.

But besides commodities, the main driver behind the rally in emerging markets has been the weakness in dollar. The dollar index has declined from 103 in January to 93 currently, down 10 per cent. This reflects the higher risk appetite in global markets, a condition conducive for emerging markets. The sharp rally in Hang Seng Index, Kospi and Straits Times Index shows that money has been flowing to other Asian emerging markets too, besides India.

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