Why Indian stocks nearing a multi-year breakout?

The below research is a part of the monthly publication "The Financial Waves Monthly Update" that gives an insight into world markets and focused on its impact on Indian financial markets. For more information visit www.wavesstrategy.com

After the world wide crash of 2008, the market dynamics changed and not only Indian stocks but many of the world major indices started moving in a big consolidation phase. 

We believe the entire world equity markets are interlinked to an extent and move in tandom but with lead and lag behavior. A few of the major world indices has already given breakout whereasBRIC (Brazil, Russia, India, China) the darlings during the bull run of 2003 to 2007 are lagging behind. But the underperformance and outperformance behavior is cyclical and our detailed analysis produced in current monthly research “The Financial Waves Monthly Update” shows Germany (DAX) index, Hong Kong (Hang Sang) index and Indian (Sensex) index. These markets are clearly exhibiting lead lag behavior.

Now we took a step forward and also analyzed the heavy weights of Indian equity index to understand that if Indian markets are really going to outperform over months or probably years to come.

Index heavy weights at a glance

The above 4 charts of Indian heavy weights are clearly showing a consolidation phase ongoing since 2008 onwards. But even then Sensex and Nifty are nearing life time highs is because of other few stocks or sectors that are constantly outperforming. The monthly research also shows those other stocks that are outperforming and that shall continue to do so going forward.

The time is running out for the ongoing correction since 2008 onwards and prices are nearing the breakout of multi-year. Do not miss out on next big opportunity and time looks ripe for Indian equity markets. Building the portfolio of stocks that will strongly outperform till 2020 and creating value for your investments!!!

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Sensex: Extremely crucial week close to confirming next BULL TREND BUT...

The below research report was published on 18th November morning before equity markets open. To subscribe to the daily research report  "The Financial Waves STU" visit http://wavesstrategy.com/index.php/store.html

Bottom Line: Sensex Long term charts along with Nifty still keeps both the possibilities open. This week’s action will be very crucial.

Sensex Monthly chart:

 Nifty daily chart:

          

Nifty daily chart: Bullish alternative

Nifty 10 mins chart:

Wave Analysis:

In previous update we mentioned that, “Existing short positions should now trail their stop towards 6060 levels and preferably on closing basis. Fresh shorts should be initiated only with caution since downtrend is already in its 7^th day and move above 6060 can result into deeper retracement on upside.”

We are showing Sensex / Nifty 5 different charts with 2 plausible scenarios on long term basis.  The following gives a detailed explanation right from long term to short term counts.

Sensex long term chart: Sensex monthly chart shows the long term counts since 2008 onwards. As mentioned earlier, the complete correction since 2008 is either a triangle pattern or a complex correction in W-X-Y-X-Z formation. Previously we mentioned 21100 level as crucial for Sensex on upside but the shorter term charts, negative divergence, slower momentum, reduction in speed of up move all warned us that even if Sensex touched life time high it is not sustainable and the market obliged us by giving a fall of more than 1200 points. Now after reversal seen on Friday the possibility is still open for both of the scenarios.

Nifty daily chart 1^st possibility: The 1^st daily chart shows one of the possibilities for Nifty forming a complex correction. To make this in sync with long term counts it seems wave [X] got over at the high of 6110 and since then wave [Z] is ongoing. The 1^st set of correction got over at the low of 5118 and after that a smaller degree (x) wave on upside got completed at the recent high of 6332. The current leg on downside is probable start of 2^nd set of correction of wave [Z]. As per this scenario the correction that started in 2008 is still ongoing and has few more months to run before the next bull trend starts.

Nifty alternative bullish possibility: The 2^nd daily chart shows bullish possibility where the entire correction since 2008 onwards formed a triangle pattern and got completed near the lows of 5118. Post that the upside move was impulsive wave i and wave ii is probably forming an Irregular Flat correction with c failure as wave b was close to 161.8% of wave a. Once this wave ii gets completed next leg on upside in the form of wave iii should start. This wave iii should be very fast, strong, having lot of momentum and strength to take out the highs and enter into unchartered territory very quickly. If this is the correct scenario the movement can be violent and everyone will keep guessing and evaluating the reason for such a move. This week’s price action is extremely crucial if prices are indeed starting the 3^rd leg on upside.

The reason why we are showing this alternative scenario now is that the move down from the high of 6340 to current levels even if covered more than 350 points we did not see a single fall more than 100 points and on Friday the up leg easily registered 100 points on upside although on intraday basis.

Short term possibilities: As shown on 60 mins and 10 mins chart, the move down can be considered either corrective or impulsive. A move above 6100 will indicate that the impulsive move on downside is over and we are headed for deeper retracement towards 6200 – 6250 on upside whereas if the Gap area is filled and prices move back below 6000 it will increase the odds that one leg on downside towards 5920 is pending before the upside retracement can start. On other hand if the Gap up action with broader market continues this will be a strong positive sign.

To explain the above technical view in a nutshell, any move above 6300 with strong momentum, breadth, Gapping action, participation from broader markets will indicate breakout from multi-year correction on upside whereas increase in momentum on downside and break of 5700 will increase the odds that the correction since 2008 has still few more months to continue before next Bull trend starts.

Over short term, close of Gap created on Friday will be bearish and move below 5980 will extend the correction towards 5930 or 5820 whereas any move back above 6100 will create higher highs and higher lows and will result into deeper retracement at least towards 6200 – 6250 levels. Traders following our trailing stop method should exit the shorts and locking a profit of nearly 200 points on Nifty and reinitiate shorts only below the previous low near 5970-5980 levels. Any continued Gap up action which remains unfilled throughout the day with broader participation will be positive.

The above research was published on 18th November 2013. To see the latest price action and changes made to the above counts & For daily research report with Nifty and 3 stocks visit http://wavesstrategy.com/index.php/store.html or contact us at helpdesk@Wavesstrategy.com or call us on +91 9920422202

Ashish Kyal - Participation of broader market will determine the trend ahead in Economic Times of NBT

Ashish Kyal - Participation of broader market will determine the trend ahead in Economic Times of NBT Written by Ashish Kyal    Monday, 18 November 2013 12:17 Sensex long term analysis:  Sensex has been moving in a big triangle consolidation pattern since 2008 onwards. The top made in January 2008 near 21200 was recently taken out in the month of November on the day ofDiwali Muharat trading & Sensex registered a high near 21320 levels. After touching life time highs we can see a fall of more than 1100 points. But on last Thursday again there was sharp rise and it seems the index is ready to touch the life time high levels again. Both September and October months have shown positive closes and has also taken out the previous month’s high. This keeps the monthly bias positive and November monthly close above 21300 will be the confirmation of the start of new Bull trend.  However, it will be important to see if the overall momentum increases with violent moves on upside and participation from the overall broader market which is important for confirmation of the next Bull trend scenario. Over here itself we have mentioned few weeks back about Sensex touching new highs and it did exactly as expected. Upside momentum and increase in volumes will be very important during this period. Economic cycle analysis:Interest rate cycle clearly shows that major bottoms in markets are formed during the period of reducing interest rates and the major tops are formed when interest rates are at highs. From Economic cycle perspective this also makes sense. In a normal inflationary environment it is the Bond market that tops out prior to Equity and later followed by Commodities i.e. Bond – Equities – Commodities. Also logically once the economy starts to heat up central bank starts increasing the interest rates to cool down the economy. This results in Bond topping out earlier than Equity market. This topping cycle was clearly visible during the 2006 - 2008 topping process as well. From Indian context, we think the interest rate cycle has already topped out in 2012 when we had interest rates near 8.5%. Since then we can see that interest rates have slowly come down but only it to be increased by 50 bps over past 2 months. However the current repo rate currently stands at 7.75% which is well below 8.5% top created in 2012. The interest rate cycle should now continue its downtrend and eventually Equity should start moving up. So from Economic cycle perspective Equity markets are due for an uptrend. Stock Selection:From stock selection perspective the stocks that can outperform during the next uptrend can be Reliance Industries, SBI, L&T, Tatamotors to name a few. Reliance Industrieshas been in a consolidation since 2008 till date and move above 930 will be first positive confirmation for this stock. Similarly for SBI move above 1900 will be an important positive confirmation. Tatamotors is already near life time highs and is outperforming broader market. This stock can continue to outperform for months to come. Week ahead: In short, given the strong reversal on Friday this week looks to be positive. On downside 20100 is very important support over short term and 19300 is crucial level from medium term perspective. Move above Thursday’s high of 20600 will continue the positivity and further above 21000 can result into life time highs again! For daily research reports and intraday / positional advisory along with long term forecast visit www.wavesstrategy.com

Sensex at crucial juncture! Is this the start of next BULL TREND?

Bottom Line: Sensex again reached near the previous highs of 20700 made in September 2013. It is on the verge of long term trend changing level!!!

Indian markets have been moving up amidst all the negative news that has come out over past 2 months. The monthly chart clearly reflects this movement. A simple bar technique shows that prices have so far made higher highs and higher lows which is the basics of technical analysis and yet the most powerful technique to determine the direction of the trend.

In today’s morning research report “The Financial Waves Short term update” we have shown 4 different time frame charts – Monthly, Daily, 60 mins, 10 mins to determine the trend right from long term to medium term to short term and explained how at times it is imperative to see all the degrees whether you are an intraday trader or long term investor.

Here in this article we are showing just 1 chart of major index with wave counts purposely removed that are shown in actual report.

Sensex Monthly chart:

Wave Analysis:

In previous update we mentioned that, “Existing position should trail stop towards 5950 levels and if Nifty has a Gap up opening the same should be trailed towards 5980. In short, we continue to be…... A move above ……………. will form higher highs and higher lows even on the daily degree and Sensex will again be on the verge of an upside breakout!”

We have been bullish on Nifty as soon as it took out 5650 level. In 11^th September 2013 research we mentioned “We have seen a Gap up move as soon as this correction got complete and not only Nifty many of the stocks have shown inverse Head & Shoulder reversal pattern at the bottom. First target for this pattern is near 5850 – 5900 levels.”

Even on 4^th October 2013 we mentioned that “On one higher degree, the move up from 5400 to 6150 took approximately 10 days and so far prices have already consumed 9 days and has retraced only 50% of this up move. This concept suggests the medium term up trend that started from 5400 is still intact and a move above ………. will form a classical higher high and higher low formation even on daily scale.”

In today’s morning research before market opened we published the above shown monthly chart along with detailed explanation on daily, 60 mins and 10 mins degree.

Rotational rally:The strength we saw in Friday’s trading was led by Banking, IT and Capital Goods sector whereas high beta sectors took a break. This pattern again fitted very well with the overall ongoing rotational rally concept.

Sensex - Price to Earnings and Price to Book ratio:

Figure 2

From fundamental perspective, Price to Book ratio has arrived near 2003 levels and Price to Earnings ratio is also at the level of 2005. So by using these 2 simple parameters we are not seeing the current market as expensive for now but rather cheap on valuation. There is lot of other parameters apart from these 2 that goes for fundamental justification… The above chart is picked up from “The Financial Waves Monthly update”.

Conclusion: …….. we want our readers to be unbiased and look at this objectively rather than acting subconsciously and not accepting the probability of a possible ……… formation as well. We do not have preference of one scenario over other but we are close to getting that confirmation.Sensex has arrived very close to confirming the start of next BULL TREND but let us wait for the mentioned important level to be broken on upside for confirmation!

For various subscription options and more details about equity research report published on daily basis before market opens that has Sensex / Nifty as well as 3 different stocks with Applied Elliott waves visit the pricing page at http://wavesstrategy.com/index.php/store.html or contact us on +91 9920422202 / +91 28831358 or write to us at helpdesk@Wavesstrategy.com