Where do we go after the damp squib?

I Am trying out to this experiment of moving from an unstructured twitter thread to the blog. I have no real idea of how successful or coherent I’ll be, but hopefully I’ll get better at this. Please excuse me if the post rambles a bit.

 The (non-)volatility of election results

From a volatility perspective the election results turned out to be a damp squib. Agreed that on the day of the results, there was a 400-point candle but on the weekly charts it didn’t even manage the widest range for Calendar Year 2019. That’s a pity. Even in 2014, NIFTY made the widest range bar in > the past 20 weeks and the less we talk of sparkling price volatility in 2009 and 2004, the better it is.

That was legendary volatility; days you remember for years!

The question will, inevitably, come up. Why does this even matter? Maybe as they say, the markets had already *priced* in the election results (That is BS; just in case you haven’t read my tweets).

The Consolidation

The real reason it matters is the yellow rectangle and the consolidation it represents. Since making an intermediate top in early August 2018, NIFTY has moved 3% in ~ 10 months and 5 of those 10 months were spent under the tender love and care of the 20 Monthly SMA. This SMA was, almost, retested in May 2019.

While the NIFTY has moved beyond the previous ATH with some minor conviction, it hasn’t seen the kind of explosive move that many (including myself) expected.

The baseline

For the purpose of the next set of analysis, I’m going to assume the elections were a non-event (sadly). Let us see where the NIFTY stands today

Weekly Charts

  1. Price is between +1 SD to +2 SD BB
  2. RSI is approaching 70.
  3. The price differential between the Week’s High and the 20WSMA is 6.3%

To Summarize, it is potentially (Why potentially? The price action and data is dynamic) getting close to levels where we should worry but not yet.

The Weekly Chart

Monthly Charts

  1. Price is tagging the +2 SD BB (3rd consecutive month)
  2. RSI is approaching 70.
  3. The price differential between the Month’s High and the 20MSMA is 10.22%

Monthly Charts

Quarterly Charts

  1. Price is tagging the +2 SD BB (2nd consecutive quarter)
  2. RSI is at 79.84. For context, this has been higher only twice earlier (Jan 2006 @ 80.4 and Oct 2007 @ 86.74)

This Long-Term trend is starting to breathe rarefied air. Yet, this is a quarterly chart and fortunes can be built & lost in a single quarterly candle.

The Assessment

With the baseline established, let us begin an interpretation of the charts

The Quarterly charts (Long-Term Trend)

  1. Since 1999, there have been six corrections (bear-markets?) lasting at-least two quarters.
  2. 5 of the 6 started from a new ATH.
    1. None of these 5 started below the +2.5 SD BB on the Quarterly Charts.
    2. 3/5 tested or crossed or at-least went very close to the +3 SD BB.
    3. The same levels on the NIFTY (today) are 12600 – 13400 and rising at 400 – 500 points per quarter.
  3. The one instance where the NIFTY didn’t make an ATH and had a multi-quarter correction (bear-market?) was in October 2010.

To summarize, the lack of an explosive move post elections has, probably, extended the duration of the LT Trend.

Quarterly_Correction

The Monthly charts (Medium-Term Trend)

  1. The Monthly candles for the past 3-months have all tagged the +2 SD BB.
  2. If we refer to the Yellow rectangles, in the chart below, we’ll see that none of the 6 instances (since 1999) resulted in an immediate top and the rally continued for anywhere between 3 months – 4 years!

Monthly_BB

  1. In all these instances, the final top happened with the Monthly RSI – broadly – beyond 70 (and we’re not there yet)
  2. Another interesting data point is that months of December 2018 – February 2019 were all red candles. 3 or more consecutive red candles doesn’t happen often.
    1. It has happened only 11 times earlier (since 1997) and of these 11 instances
      1. 2 have happened at or near the top.
      2. Remaining 9 have happened in the middle or the end of a down-move.
    2. The current set of red candles are very similar (at 20MSMA) to what happened in 2013 and 2016 which resulted in significant ATHs and multi-month rallies.

 

Monthl_Reds

The Weekly charts (Short-Term Trend) –

Finally we have reached the point of assessment of the Short-term trend

  1. The two broad parameters that give a, high-probability, view of an upcoming correction are
    1. The price differential between the Week’s High and the 20WSMA is somewhere in the range of 7% – 8%. The 20WSMA is rising at 50 – 60 points per week.
    2. Test of the range > +2 SD BB (Currently @ 12205) rising at ~90 – 100 points per week.
  2. Sometimes, this can combine with a streak of 5 – 8 consecutive green candles (currently NIFTY is making the 4th Green candle)

The curse of the thousands

Whenever NIFTY has crossed a x000 milestone (i.e. 8000 – 9000 – 10000 – 11000 etc) for the first time; it has found an immediate resistance between the range of x100 – x200 points (8180 – 9119.20 – 10137.85 – 11171.55).

Summary

This has been a much longer blog-post than I anticipated it would be; let me try and gather my thoughts into a summary

  1. The Short-term trend may face a hiccup in the next few weeks due to a convergence of multiple parameters.
  2. The Medium-term trend has some way to go and FY19 might turn out to be a real good year for the investors.
  3. The Long-term trend is entering the slog overs, but difficult to say whether it is the 40th over or the 47th over of the 50-over inning.
  4. The levels to note (at this time) are
    1. ST Trend – 12100 to 12250 (rising at 50 – 100 points per week)
    2. MT Trend – 12300 to 12600 (rising at 160 – 180 points per month)
    3. LT Trend – 12600 to 13400 (rising at 400 to 500 points per quarter)

 

NOTE – The above post should be considered as my analysis notes and should not be construed as any kind of investment advice.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s