The swift rally in Indian shares in the past seven weeks is largely driven by liquidity and not backed by any considerable improvement on the ground.

The swift rally in Indian shares in the past seven weeks is largely driven by liquidity and not backed by any considerable improvement on the ground.

Why Market Rise

Strong inflows from foreign institutional investors (FIIs), due to the loose monetary policy of the European Central Bank (ECB). FIIs have pumped in Rs 20,332 crore ($4.06 billion) into Indian shares since January 1, shows data from the Securities and Exchange Board of India (Sebi).

LONG Long Term Worries

• Industrial output in December rose Just 1.8%
• FY12 GDP growth expected at 6.9%, lowest in three years
• Headline inflation in December at 7.47%, above the central bank’s comfort zone
• Government set to miss fiscal deficit target of 4.6% in FY12 likely between 5 to 5.5%
• Rising Brent Crude Above $ 120 will force to increase the rise in Petrol-Diesel-Lpg Prices which will increase Inflation
• No major economic reforms, 51% foreign direct investment in multi-brand retail deferred
• This Year Food Securities Bill will be passed which will increase Fiscal deficit

In the 45-50 days there are no change has been seen in economy but market has been rise by more then 3000 points on hope without change in ground reality and bulls are betting on liquidity that as long as liquidity is coming rally will continue but when this stop again above Long Term worries will be remembered

On weekly charts as shown head and shoulder pattern the rally looks Trap with low volume and if it breakdown on lower side with my earlier view of last vicious bear market of the decade at leat head and shoulder target 10600 and wave c and super cycle degree wave 2 target are 9895-7697-6500-5555.

I don't know whether you and I should expect such low levels but the Elliott Wave Principle suggests it and till the market proves it wrong it might be better to be prepared for the above scenario till a better one is clearly emerging.

In this fall of wave c and wave 2 fundamental conditions will be bad or worse then previous bottom. Prices decline relentlessly, fundamentals ultimately collapse in response

While due care has been taken in preparing the above Analysis, no responsibility can be or is assumed for any consequences resulting out of acting on it.