My friend Neppolian gave me a tap on my shoulder and told me that ” The character of market” changed last week
His general thought process on Indian and Global Equities along with my favorite anti central bank asset ( GOLD)
Equity markets:
Globally selling climax may have peaked, however only temporarily. This could provide temporary reprieve to the bulls upto 50% of the recent selloff. This 50% pullback would read as 11800-11900 in Nifty and approx 27000-27500 in Dow.
Most likely this move will play out in max of 3-5 weeks and the speed of the move will not allow momentum oscillators to turn into buy. Post this pullback, markets should resume their selloff….and take Nifty to 10000-9500 zone. The collapse is not likely to challenge the the previous top (2015) of 9200. This top to stay protected and offer support in the selloff.
The above view holds as long as all future pullbacks stay under 11950-12100.
The trading environment is likely to be extremely volatile and may hand out losses both ways (in longs and shorts) in the near term. Gap up and downs is likely to be the new normal. Overnight position could be rough.
20YC seem to have started in earnest. The Fed “put” is the only rescue (in the shape of capped yields, currency intervention, rate cuts, QE4, MMT, banning Short Sales). However most measures are likely to be ineffective till the markets reach their floor as witnessed in 2008-9 (15 successive rate cuts and short sale ban didn’t stop the markets falling by 60%).
My sense on stages and levels in Dow:
Stage 1
From 29570 to 24670 – already played out
Stage2
From 24670 to 27250 – expectd in next few wks
Stage3
From 27250 to 21000
Stage4
From 21000 to 27500
Stage5
From 27500 to 23500
Stage 6
From 23500 to 29000
Stage7
From 29000 to 16000
All these 7 stages are likely to be played out by 2023 beginning 1Q 2020
on GOLD
It has been found in the past that even precious metals fall with equities when equity collapse speed gets hair rising. It is possible that trade books try to come out of all positions including gold to lock in some gains amid sea of losses in equities.
Gold, most likely will keep falling with equities upto 1480-1380 types and then diverge from equities in the latter and deeper stages of the coming equity selloff. From this latter stage Gold is expected to launch a major bull run and outperform equities.
My two cents
i strongly agree with his with a caveat that if central bankers come out with yield control measures then we might see a run to physical and financial assets from the fiat currency