Market Analysis for April 2019 - 2

The markets closed up approx 1 pc to just below 11760. Let us look at the factors moving the markets.

1. The corporate results coming in are good. Heavyweights like Infy, TCS and HDFC Bank have posted good results. This is supporting the markets.

2. The FII flows in anticipation of Modi winning are robust. This is helping the markets move up.

3. The markets are now very close to the psychological level of 12000. Markets tend to correct from such milestones like they corrected last year from 11172.

4. Technically, on the weekly scale the RSI has scaled almost reached a reading of 70 which usually triggers some correction.

5. Right now, till May 23 I expect the markets to maintain a range of 11500-12000.

6. The monsoons have been predicted to be normal by IMD. Skymet has predicted below nrmal monsoons.

Overall a dull period for the markets, waiting for the outcome of election results. The markets seem to be factoring in all the good news. Any disappointment on the election or monsoon front will lead to correction.

Market Analysis for April 2019 - 1

Posting after a break and if we refer my last post of September 2018, the post was pretty much correct in terms of correction. We had a good 15 pc correction.

The correction was from 11760-10004.

In today's post, I would like to focus on the post election scenario and how things can play out.

A very key indicator is the P/E ratio for the markets. Anything above 25 is perceived as a bubble territory.

The current P/E is 29.13 and the index is at 11643. This also means that with every 400 points movement in Nifty the P/E increases by 1.

Let us look at this old chart I have posted.

https://money-manthan.blogspot.com/2009/08/2-of-most-important-and-basic-analytic.html

This means we are in bubble territory already.

Now, there can be 3 scenarios post elections:

1. A Clear BJP Majority in which case there will be euphoria and we can expect the markets to go up another 1000 points or so. A top can be expected around 12500.

2. NDA win with a weakened majority. In this case, a correction can be expected. We can expect 10000-10500.

3. Unlikely but possible,opposition lead coalition. This would initially lead to a sharp correction much like in 2004. This will take us back to 9000-9500.

What is the bottomline in all this? The earnings have to catch up with the Nifty. In the best case scenario also there is limited upside and it would be prudent to book profits if not before elections but definitely post elections.

Market Analysis for September 2018

The markets closed August at about 11680 which is a new closing high for the Nifty. August was very bullish series for the markets.

1. With this, technically, the corrective A-B-C from 11172 can be discarded with a down C leg pending. It means that the markets should continue up between 11700-12000 and then correct.

2. This corrective when it occurs will be a deeper correction. The markets over the last few years have always given a 15-20 pc correction and a buying opportunity.

3.The correction when it occurs can be from 6926—11750 odd levels . This will give good entry levels for stocks.

4.Fundamentally, rupee is hitting all time lows and domestic fuel prices are at all time highs.

The elections in MP, Chhattisgarh, Rajasthan would be held in November and in the run up to elections markets are always very nervous.

5.The uncertainty or rather the perceived uncertainty till May 2019 means no breakaway rally from here. Between last month and now, things have deteriorated rather than improved.

6.I am booking profits and taking out money. The last few rupees let someone else take the profits, I would wait to buy on dips.

Markets always give opportunities to buy and current levels, the risk reward profile is not matching.

The markets can remain higher for some more time but they will have to correct before rallying up.

Markets Analysis for August 2018

The markets ended the month of July at 11356 an all time high closing. Let us look at the Technical and Fundamental factors which would impact the markets in the month of August

Technicals:

As per Elliot, we could be in a irregular correction, where starting from 11172, a 3 legged correction is progress.

Wave A ended at 11172 - 9952 =  1220 points

Wave B 9952 - 11356 and ongoing, in an irregular up move it can exceed the previous top and go above it and then correct.

Wave C yet to unfold with targets of 10000 and below.

This pullback rally is not a broad based rally and thats supports the thoery it is a corrective rally.

The correction to 10000 and below would be a buying opportunity to a mega rally to about 16000 in the next 5 years.

There are several fundamentals at play out here which support my hypothesis.

Fundamentals:

1. The biggest wildcard is that we are in an election year. Anything can happen in May 2019 and markets hate uncertainty. Markets function only on two emotions fear and greed. In Jan 2018, greed took the upper hand and now it is fear which is taking hold of the markets.

2. The interest rates are rising and that is a bad sign for the equity markets. G Sec yileds near about 8 pc and likely to rise further. Spending picks up in an election year and thats fuels inflation. RBI has to keep hiking rates even at the cost of growth.

3. Global headwinds in the times of Trump and trade wars continue to persist. No one knows how big a fire a small spark can light and whether it can be controlled.

4. With rupee breaching all time highs (69) and acounting, oil imports become expensive, fiscal deficit increases and foreign funds lose out from the markets.

5. One positive is the SIP money from domestic investors. How long it will flow in is the key?

So what do we do?

Book part profits where sitting on huge gains. Accumulate only those stocks you are willing to average at lower levels.

We are as likely to see 9700 as we are to see 12000. A pre election rally seems unlikely to me.

Probabilities for the Markets

We have seen the Nifty correcting from 11172 and there are a couple of probabilities in play.

1. A leg was 11172 to 10276

    B leg was 10276 to 10638

    C leg is ongoing

C.1 is 10631 to 10141

C.2 10141 to 10478

C.3 ongoing

2. The next possibility is all this is A leg down followed by corrective 600 700 point rally ending with a fall to 9500-9700.

In the case of 1st option, fall can end between 9900-10100.

In the case of second option, a bounce followed by new lows.

In both scenarios, it makes sense to deploy at least 50 pc cash in hand now.

No Clarity yet in the markets

Last week, we had considered 2 possibilities in the market. Both still remain alive.

1. The down move is still not complete and a low is pending at 10000-10100 followed by 500-600 point rally.

2. A wave is complete, followed by a rally to 10700-10900 and then a final leg down to C.

Breach of 10398 means down move is not complete and breach of 10640 means we are headed to 10800-10900.

Investors can buy at 10100, sell at 10800

Longer term correction sets in

The markets lost over 300 points on closing basis to close at 10454. There are several assumptions which may need to change following last week massive fall.

1. It was assumed that this is a sub wave 4 fall and a last wave up was pending. Now this probability has the least likelihood.

2. Most likely, the entire up move from December 16 to Jan 18 is being corrected.

3. 2 possibilities, the first down move ended at 10276, we are heading to 10725 to 10829 region before the next down move commences.

4. The first down move is not yet over and we head lower to 10000-10100 range.

The wave 3 from 11117 to 10276 was extended, about 841 points so wave 5 can be a smaller wave, till 10118 followed by a 600 point counter rally.

Either ways in the near term we are headed up.

For traders, 10000-10100 is buying zone and 10700-10800 selling zone.

For investors, 10100 is a 1 buying zone and 9500-9700 second buying zone.

Technical Analysis for week 5th Feb 2018

The markets closed at 10760 down from a 52 week high of 11172. Let us look at the technical analysis.

1. Wave 1 from 9687 to 10490 a gain of  803 points.

2. Wave 2 corrected to 10033, a loss of 457 points or a correction of 57 pc.

3. Wave 3 started from 10033 to 11172, a gain of 1139 points.

4. Wave 4 started from 11172.

A is 11172 - 10878 equal to 294 points

B is 10878 - 11117 equal to 239 points

C is 11117 to 10736 ongoing so far 381 points.

If C is 1.618 times A target is 10641.

Now 2 probabilities from here, 5 the wave starts for at least 800 points from here or it is abc x abc correction.

Targets of x can be  200 to 350 points.

So, if 1 more abc down then that will start from 10900- 11000 to 10500.

Technical Picture

The ferocity of last week fall took everyone but surprise. It throws up some very interesting possibilities.1. The fall was 452 points the previous largest fall was only 261 points.

2. The fall has 3 distinct legs A 10137-9981 B 9981-10081 C 10081- 9685.

3. Now, this could be the last fall or there could be a corrective up move before next round of fall. This could be if structure is ABC X ABC

4. If that is the case we could retrace to 9857, 9911 or 9964.4. The next leg of fall could take us 9450 to 9500 levels.Right now, let us consider these 2 possibilities only. Above 10050 we can expect new highs.

 At 9500 odd levels, we would have retraced entire 7894 to 10137 by about 30 pc fulfilling the criteria for correction.

Long Term looks Bright

The markets continue to sustain above the Mount 10 K mark on the Nifty. Let us see what the next 6 months hold for the markets.

1. The GST rollout seems to be smooth with very few glitches. This bodes well for the markets in general. GST rollout was a major worry for the markets.

2. The monsoons have been fairly normal except few parts of Southern India. This is another major trigger out of the way.

3. Globally, the markets have settled in a nice bullish sentiment. Unless something drastic happens, the global cues will be supportive.

4. There seems to be no political threat to the Government.

The only negative factor seems to be tension with China. This may lead to small intra day or intra week corrections, but China has too much invested in India to seriously endanger its big market for a small piece of land.

This is a market which is a buy on dips market. A 400- 500 point correction will definitely come but when is the big question.