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Equity comment - DJIA (May 5)

Equities have moved up albeit with lot of caution despite of great fears on recession and inflation. The mergers and acquisition scenario is hotting up with lots of deals in pipeline.

The theme of rising risk appetite in the wake of falling interest rates and higher inflation is supporting the higher yielding asset classes like equities and commodities. If this trend of low interest rates continues, which it is likely to, the higher yielding assets will get a good boost.

Dow Jones has been drifting up very steadily but with lack of momentum or volumes, in other words this entire move up seems to lack conviction. But even with out alternative count, the markets are headed up, at least in the short term. The shorting of Dow Jones though feasibility would be biased towards aggressiveness. The trend is likely to be up with corrections coming in at resistance points.

Dow Jones is likely to remain in range with the targets being achieved very slowly along with the result season playing out. The major direction is likely to come after the result season or due to some extraneous events. The breakout will give a new direction to the prices. In the interim the prices are likely to reach the full target objective of inverted head and shoulders highlighted in the chart. The first target which was 12900-13000 has been breached and prices are likely to reach 13700-13800 which is the target range.

The direction of the trend changes to down when the prices are able to break below the levels of 12300 to 12200. These levels are also the stop loss levels we are closely watching. For aggressive traders long at our earlier levels, the stop loss may be raised to below 12600 levels. 12600 being the neckline should be able to sustain the corrections. Break of neckline may imply targeting our stop loss range of 12300-12200.

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