It has been a while since I gathered my thoughts on the markets. I attribute it to a combination of the markets doing as expected, a bit of laziness and a lot of work. (Have a day job after all!)
Consolidation at a new ATH is as good a time as any to revisit the assessment and the expectations. So, here we go again …
NIFTY and the Bank NIFTY are at ATHs. The economy is in the eye of a hurricane but the markets are enjoying perfectly sunny weather!
Consolidation at the previous ATH is tricky business. Many questions abound. Double top? Record trailing PE? Nth round of NPAs? The crux of it all is that it is easier to justify buying cheap and an ATH, by its nature, doesn’t appear cheap. But how do the numbers look?
- NIFTY has made 3 consecutive green candles after reversing from -0.5 to -1.0 SD range on the Monthly BB charts.
- This was the 2nd successful reversal from the same BB support.
Where do we go from here? What does history say?
The NIFTY has made 3 or more consecutive green candles 19 times prior to this one.
- Seven times the streak ended at 3 months BUT a top was made only 3/7 times.
- Three times the streak ended at 4 months.
- Six times the streak ended at 5 months.
- Once the streak ended at 7 months and twice at 8 months.
My definition of a correction is a move to at least the 20MSMA. Of the 13 prior instances where the NIFTY corrected to the 20MSMA or lower, only ONE happened without testing the 2SD – 2.5SD range on the Monthly BB. The major corrections actually end up reaching close to the +3SD.
The NIFTY chart above demonstrates that we are a small distance away from that level.
The Quarterly & Half-Yearly Charts
Despite the anxiety created by the ATH, NIFTY quarterly (Current candle WIP) below demonstrates that we haven’t really gone anywhere in 6 quarters. 2% – 3% on a quarterly chart is practically nothing.
But when you look at the NIFTY Half-Yearly chart, a different picture emerges and, you can see six consecutive green candles (current candle WIP) which has happened only once before (8 consecutive green candles between 2004 – 2008)
The Bank NIFTY
The NIFTY is a sum of its components and the biggest influence on the NIFTY is the Bank NIFTY. The Monthly – Quarterly – Half-Yearly charts for the BN are below
A major bear-market led by the Bank NIFTY has ALWAYS happened after a test of the +2.5SD BB on the Quarterly charts and, sometimes, in conjunction with a similar formation on the Half-Yearly charts.
The other Chart – CNX 500
This is one chart that is very rarely analyzed. After all, why bother with this chart when the real move is always led by the top – 10 stocks. Thankfully this one lays bare the consolidation that I’ve been referring to. The CNX 500 – 1M – 3M – 6M charts are below
What you see there is a 9 Quarter consolidation and a market on the verge of a potential break-out (?).
There is a very good chance that the market of two-halves will get together and move in as a single unit over the next few months and quarters. Which direction? The most probable move is to the upside.
My hypothesis is as follows
- A strong move in the NIFTY over the next 2- 4 quarters. The target is a moving one but I don’t rule out a 15% – 20% move.
- The Bank NIFTY will lead the move and 38K – 40K is possible in the same TF.
The major top can come either in the 2nd half of CY 2020 or early CY 21. This move will be fairly quick. WHY? NIFTY has to put in some distance between its price and the moving averages for the major fall to happen i.e. it has to get stretched.
Disclamier – The above is my analysis of the market and should not be construed as investment advice. I am not registered with SEBI.