A sensible trader usually bets in the direction of the market trend, no matter what his instincts, or any indicators other than price, may suggest.
Shorting into a well-established uptrend is something a sensible trader never does twice.
Even die-hard contrarians will wait for some signs of price confirmation before they commit to action against an established trend.
The market is up around 25 per cent in the past 12 months. It would take a brave man to look for an immediate trend reversal.
On the other hand, there are plenty of reasons to suspect that the uptrend may be unsustainable through 2013. There are also reasons to believe it may be sustainable!
Let's list the key variables that could influence market direction in 2013.
GDP growth is likely to remain subdued but unlikely to slowdown to below 2012-13 levels.
Some improvements may be expected. Rupee interest rates have probably topped out.
Interest rates should drop over the next 12 months.
That's a bullish signal. Corporate earnings should also pick up in FY 2013-14.
Although these positive signals are expected and discounted to a large extent, if expectations are met, the uptrend would have support.
It may accelerate if expectations are exceeded. GDP, or earnings, or both, would have to bounce by large amounts to beat consensus.
Policy interest rates are also expected to ease by 100-150 basis points through the next four quarters.
So, the RBI would also have to be unusually bold to beat consensus.
Institutional attitude is likely to be more critical for market direction than the above variables if only because there's little consensus on institutional attitude.
Even though the FIIs have pumped in $23 bn in 2012, the market is uncertain about likely FII attitude over 2013.
Of course, most investors hope that the FIIs will remain positive. But even if they do remain positive, will they contribute the same quanta of inflows as they did in 2012? Given that the market is up by 25
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