Nifty update for 2nd December 2011

Though we expected a bounce till 4940 a opening at 5000 levels was a little bit surprising but retraced to 4940 levels during the final hours.Though it retraced to 4940 it just had a bounce from there and the whole rally was relevant and much needed one.There is no change in opinion for the downside as the trend reversal has to happen only above 5200 levels and that too with proper consolidation.We have seen bear market rallies at many stages right from 6300 till the recent one.These rallies must be used as a buy on dips for a shorter period of time because whenever it comes down , will be met with good buying interest as people did not get an opportunity to participate in it.If we list all the major tops 6200 levels we had huge gap up openings ,repeated at the tops of 5900, 5700,5200 etc. I would consider this as a bear market rally. If we have a look into the stock data as i said in my yesterday's post Reliance moved up because of buying and not of short covering. Banks went up because of short covering , touched resistance points and came back with ICICI as an exception.Implied volatility has come down substantially with an increase in open interest and cost of carry and thus it indicates huge short covering and buying on dips. On the downside 4750 would be a major support zone from a medium term perspective and buy any major dip for the secondary rally as all the major rallies would get topped out with a secondary rally.As it is already done with the major Fibonacci number at 4940 next important level would be 5020-5030 levels where next major hurdle is placed at, but buy only the dips and no need to buy at the break out of highs as it would be dangerous.Selling on rallies was very evident in major stocks like l&t and Axis bank.Turnover data tells that lot of profit booking is happening at higher levels. I would wait for a topping out pattern to go short and its better to wait for a secondary rally to create that top.