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Last week saw a good start to July with the TA-25 rallying after a month of heavy losses, but investors should be wary about pinning hopes on a continued advance since technical indicators signal that the rise is likely no more than a "dead cat bounce."
When the index was at 780 on June 30, this column anticipated the move, known as a "dead cat bounce" based on the assumption that "even a dead cat will bounce if dropped from high enough." This is what occurred over the following sessions, as those who were short of the market took their profits, and bargain hunters emerged to buy up the index, which posted a weekly rise of 4.7 percent to end at 816.
Since the index's intra-day peak of 904 on May 17, there have been two occasions when the market appeared to have arrested its decline and rallied for a few days, only to come off - even harder - after the rallies petered out.
Last week's ascent looks likely to be the third such instance - the index gained over 5% between last Sunday and Tuesday, before beginning to drift lower once more. Given that pattern of trade, to technical analysts, the outlook remains negative for the TA-25 unless the market rallies sufficiently to close above 850 - a point where there appears to be a strong resistance level at present. Given that the index is still more than 4% below 850, that does not look likely in the short-term, so the general trend remains down for the TA-25, and seems set to stay that way for some time.
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