India in big bear market but short term pull back expected!

The following was published today in Economic Times section of Navbharat Times by Ashish Kyal of Waves Strategy Advisors (www.wavesstrategy.com)

Indian equities continue to move in a stealth bear market.

The reason we call it stealth bear market is because the major index Sensex and Nifty is not reflecting the true picture. Since September 2012 to current date Sensex has been moving between 18300 and 20400 levels. During this period not only Smallcap and Midcap stocks butbluechip stocks like IDBI, DLF, JP Associates, Ranbaxy, PNB, PowerGrid to name a few have fallen anywhere between 30% to 50% from their 52 week high values.

Advance decline line (AD line) is a very simple technical indicator that shows whether overall breadth of the market is positive or negative for the given period. This indicator has been constantly making new 52 week lows. This indicates that the number of declining stocks has been higher than number of advancing stocks for more than a year now. This is also the reason why we say that Indian markets are in a stealth bear market.

In past week, RBI kept the key policy rates unchanged and lowered the growth forecast to 5.5% from 5.7%. There was sharp depreciation in Rupee after the announcement and Sesnex closed down by almost 250 points on the same day. RBI action over past few weeks has failed to produce desire impact on currency which is concerning for medium term trend of Equity and Currency markets.

Banking sector continued to be under pressure and has reached the levels last seen in September 2012. On Bank Nifty, short term indicators are extremely oversold and so we can expect some pullback on upside towards 10500 in this week provided 9700 level is protected on closing basis.

Over past week, Sensex failed to move above 20400 levels and moved down as expected. Prices have now come from the upper end of the range towards the lower end of the range near18800levels. On Friday, prices made a low near 19070 which is exactly on the important trendlinesupport which is valid since June 2012. We think prices will manage to protect this trendline and should bounce back from here in this week. Also many of the stocks are in extremely oversold state and so we can expect some sideways consolidation in those stocks.

In short, the bigger trend of the market is down but over short term we can expect some pullback on upside. For this week 18800 will be an important support level on downside for Sensex. If prices manage to protect this level we can expect a bounce back towards 19800 which is 61.8%retracement level of recent fall.

Meanwhile, the Global markets continued to be stable. Food for thought is that the crisis that seems to have originated in US and Europe in 2008 but their equity markets are hitting life time highs whereas India still continues to struggle and Sensex is almost 10% below its life time highs it touched in 2008.

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