Nifty – In a stealth bear market!!!

Nifty made a high of 6230 on 20^th May 2013. The move up broke the levels of 2012 and 2013 and made high at the level which was last seen in November 2010.

Prices reversed on the same very day after making this high and have been down by more than 250 points from there. Even though Nifty and Sensex made new highs for the year the broader market did not show any participation. The below chart of NSE Midcap index clearly shows that this index retraced on upside by only 61.8% when Nifty touched new 2 year highs.

The below chart shows a classical inter-index divergence. Nifty touched new highs for the year butMidcap index failed to do that and turned down.

NSE Midcap and Nifty chart:

Why we say Indian equities are in a stealth bear market!

Please check the below Advance decline line chart. This chart clearly indicates that the Advance decline line has touched new lows even when the index has been moving higher. This clearly indicates that the majority of the stocks has been moving down against the direction of Nifty 50 index.

Chart courtesy: icharts.in

In today’s morning report of “The Financial Waves” we mentioned following:

The overall breadth of the market deteriorated drastically on Thursday when markets fell by almost 130 points. The Advance decline ratio has fallen below its previous lows which was seen when the index was at 5477 levels. This continues to indicate that we are in a stealth bear market where the major Nifty index is not reflecting the true picture of the overall health of Indian equities. Barring a few heavy weights many of the stocks have moved below not only its 52 week’s lows but also are trading at life time lows. This does not necessarily mean that the stocks are cheap as it is a relative terminology and should not be used in absolute manner. A fall further in these stocks will make them even cheaper compared to current price. Case in point – Do not try to bargain hunt stocks that are falling unless we see significant reversal in price as nothing is cheap in stealth bear market!!!

This is not it. There is much more to the current market scenario. We have shown 4 charts for Nifty and Midcap index in today’s morning report that gives a clear view on the current market situation and what can be expected over near to medium term. Get access to these research reports by writing to us at helpdesk@wavesstrategy.com. Visit www.wavesstrategy.com for more information.