Sensex: Sector specific movement to continue- Economic times section of Navbharat Times

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

Sensex showed strong bounce back after making a low near 25910 levels on 17^th October. This can also be attributed to the announcement of another reform of diesel price deregulation along with outcome of Maharashtra and Haryana state elections with BJP leading in both the states. This will help the central government to put further reforms on fast track. On the day of Diwali Muhurat trading Sensex inched closer to 27000 mark whereas Nifty managed to close above psychological 8000 level.

Monitoring Global growth will be important: IMF in its latest World Economic Outlook has raised concerns about slower than expected growth in developed economies due to high debt burdens and unemployment. It will be important to keep an eye on global growth going forward along with other macro-economic factors.

High Gold and Silver imports: The imports of precious metals have sharply increased in September. This has been a concern since reduction in Crude prices has still not helped the country to reduce its current account deficit (CAD) which has widened to record high levels. The rise in Gold prices from here on can further put pressure on CAD and government will be forced to take action to keep this under check.

The results have been mixed bag so far with a few stocks like TCS, HCL that did not live upto the expectations showing sharp selloff. On the other hand Oil and Gas sector stocks like HPCL, BPCL showed good uptrend after diesel price deregulation announcement. Bank Nifty index has managed to touch new highs at 16500 levels but Infra, Power and Metal index has still not shown any meaningful recovery. To sum it up it is a mixed signal and the sector specific activity can continue unless a strong trend emerges in either direction.

Week ahead: Overall, Sensex has managed to form a positive weekly bar which is keeping the short term trend positive. On upside break above the previous high near 27350 will be crucial and on downside recent low formed near 25900 will be an important support. 100 days Simple Moving average which provides the direction of medium term trend is also near 26000 level. So for positive trend to continue this level should be protected. However, given the sharp selloff seen in a few European markets over past few weeks and concern raised by IMF it will be important to use good risk and money management strategy in case there is reversal. 

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Why this rally is different? Nifty and sectors relative comparison

Bottom Line: Nifty managed to close above the previous high level of 7808. Trend continues to be positive over short term.

The below is the research published in daily research report "The Financial Waves short term update" By Waves Strategy Advisors. For subscription to this daily newsletter visit www.wavesstrategy.com 

Relative comparison chart (1 month)

Nifty daily chart:

Nifty 60 mins chart:     

Wave Analysis:

In previous update we mentioned that “In short, as long as 7690 – 7680 level is protected on downside the trend will be positive. Only a close below these levels will indicate downside correction is probably starting. If a strong participation is seen from Smallcap and Midcap sectors as Nifty crosses 7810 we will come out with upside projections.”

Nifty continued to move higher and closed at life time high levels near 7830. The trend has been positive all the while for 8 days now and not a single time prices have closed below the previous day low. On downside one can now use 7750 as important level which is the low of 23^rd July. As long as this level will be intact the trend will remain positive.

Why the current rally is different so far compared to the previous trend?

Yesterday participation was seen from Metals, PSU Banks, IT and FMCG space. Even though these sectors have been positive, high beta Midcap and Smallcap sectors continued to trade in sideways direction for 4 days in a row. To understand the participation over past 1 month we have compared Nifty with various other sectors from 25^th June onwards.

So far post 25^th June the first chart clearly shows that Pharma and IT are the only 2 sectors trading above Nifty and indicating outperformance from them. Pharma gained nearly 10% and IT nearly 8.5% post 25^th June. On contrary, Midcap has been struggling to take out its previous high of 8^th July when Nifty touched 7808 for 1^st time. Each of the sectors – Midcap, Infra, Energy and PSU banks that were the major gainers and driving the rally before has failed to move above their respective highs. These all sectors have been laggards and defensive sectors have given strong returns.

A healthy sign would be considered when we see participation from broader market but this time market dynamics have changed. The current up move even though is similar to that of February – March 2014 (up move retraced previous down leg slowly) it differs strongly in terms of sectors that are outperforming.

This type of movement conforms to our current Elliott wave counts that the up move is wave b and should lack momentum. It is only when we see strong participation from the above sectors that are underperforming the upside steam should pickup.

Short term wave counts: As shown on Nifty 60 mins chart, the short term trend is positive. Even though the channel angle has been shifting and reducing, break of channel will not carry much importance unless there is sharp reversal below important support levels now near 7750 followed by 7690. Prices are now in 3^rd standard correction in the form of a-b-c. Faster retracement below 7690 will confirm the entire up move from 7422 is complete but as long as these levels are intact it is better to trade in direction of uptrend.

In short, Nifty has closed in unchartered territory and trend continues to be positive. The sectors that are outperforming are IT and Pharma over past 1 month and unless other sectors mentioned above start showing momentum the overall health of rally will remain skeptical. Nevertheless, use 7750 as immediate support and as long as 7690 is intact trend will remain positive for now!

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