Neppolian is back and he is suggesting that you temper your enthusiasm. On of my widely read post http://worldoutofwhack.com/2018/10/24/conversation-with-a-technical-analyst/ was a conversation with him on technical positioning of markets where he insisted, market has put a short term bottom and is headed for a rally.
Well that played out really well and now he writes
Apropos our 5th October 2018 market update where in we had proposed markets bottoming out in the subsequent 2-3% range of 10400 and rallying to a Nifty level of 11000-11200 and Bank Nifty level of 26000-26500, here is our further thoughts.
The markets did bottom within 2-3% range of 10400 by basing a low at 10000 Nifty. Bankex has reached the mid point of the 26000-26500 range suggested with today’s high printed at 26300. The rally measures 9% off the bottom from 24250.
Nifty: has underperformed Bankex by rallying just 7% to 10700 from a bottom of 10000. This is concerning as broad sectoral participation still remains elusive.
Breadth: one of our principle arugement for a rally was basis the sentiment indicators (breadth indicators) trading at historical oversold levels on 5th October. Currently the oversold condition no longer exist now and in fact the
present readings are close to historical pullback metrics.
Market Breadth now:
% >20DMA = 68% (4%)
% >50DMA = 44% (8%)
% > 200DMA = 40% (28%)
50DMA>200DMA=42% (56%)
The numbers in brackets above represent the figures on 5th October.
We are concerned by the deterioration in the 50>200DMA gauge moving down from 56% to 42% (this is interesting) This is suggestive of crumbling medium term market strength even as Nifty is playing out the expected rally. Such deterioration is symptomatic of corrective rallies which would eventually resolve to further downsides.
Nymex crude: the second principle argument for a rally was based on crude trading at an important rally high/resistance at 78 on 5th Oct and the expected correction in crude helping Indian equity rally. This has played out as expected with crude falling from a high of 78 to 55 now. The sentiment for crude has turned 360 degrees
from peak bullish to max bearish now. We feel the sentiment reversal is symbolic of near term bottom in crude and we are open to the possibility of crude starting a pullback rally from 55 to 65-68 levels. This should be equity decretive.
INR: The third argument for a bull case then was INR staying under 74 and a possibility of appreciating. Since then INR has been involved in a shallow appreciation from 74.5 to sub 72 now. We do not expect INR to appreciate past 71 in near term putting a cap to further equity rally.
Basis the above changed circumstances and the medium term breadth deterioration we shall be open to mark down the Nifty pullback targets from the earlier 11000-11200 to the more likely 10700-10900. We can retain Bankex ending its pullback in the range of 26300-26500.
Conclusion
This calls for taking profits in the earlier tactical buys if any done at the recent bottom and also recalibrate portfolios in the names in which you may be wanting to trim/exit.