Nifty Trend, Prediction, View, Target 28th May 18
Nifty Futures today once again gave a pullback and moved towards the resistance zone placed between 10600-10700 as per our analysis, view, prediction Nifty trend remains down and what we have seen over the past 2 days is a pullback in a downtrend and eventually we will be seeing lower side targets so on pullbacks like the ones we have seen today traders and investors should be looking to exit longs and get on to cash and aggressive traders can even look to short sell Nifty Futures or weak stocks around resistance levels. The market is too complacent about the macro headwinds for now although there has been some adjustment post 15th may till today but whenever the market starts taking a full stock of the current problems we will surely see stocks tanking because this will affect the economy on multiple fronts and corporate India is not in a position to take these problems head-on.
From a purely technical stand point Nifty has multiple resistances between 10600-10700 spot Nifty levels mentioned and we do not think that any upside will be sustainable and this current move as per our analysis will end up making another lower top so the chart pattern will keep making lower high and lower lows but keep in mind we are not suggesting for one minute that pullbacks like the ones we have seen today will not come, surely they will keep coming but these pullbacks will end up as lower tops as we have explained so keep in mind longer term trend and the main trend remains down but near term pullbacks will keep coming from time to time. For a bullish structure markets need to keep making higher tops and higher bottoms in faster speed (just have a look at crude oil charts or usdinr charts) than the preceding move, as we have explained in our previous post also that move from 9952 to 10930 has broken important areas in much lesser time which means that main trend which is down has resumed. When to sell where to sell and how much to sell all details have been given to our clients. As usual, if you are only trading on the basis of this post please use your own risk management and then only trade. Please do not over trade and please always keep your risk in check.
Many of you have been asking me when should we invest in the Indian stock markets and we would like to point out few important parameters based on which you will be able to decide for yourself. Few of these are purely fundamental in nature so keep that in mind but historically have been leading indicators of market trends. Hefty valuations, rising inflation, and worsening of the fiscal and current account deficit and just a few of the problems that we have highlighted in this update.
Sentiment analysis shows that most traders on the street are very bullish once again, each and every trader is overextended and long and most traders are very euphoric as of now. The general talk of the town is that Nifty Futures / Indian stock markets have made a higher bottom around the 10400 area and now will be moving towards new high for targets of 11,000 plus. Regular readers of this website are well aware that we are not in the camp that is predicting new higher or higher side targets but at the same time please also keep in mind that pullbacks will keep coming from time to time, when these pullbacks do come they will appear as though a new bullish trend has started but on the contrary they will just be mere pullbacks and nothing more than that so the strategy to be used is to sell on rise only towards resistance zones and then enter the main trend which is down as of now for lower side targets. As we have discussed below there are way too many headwinds currently which are increasing every day for a sustainable equity rally to take place and we are not in the camp that thinks that the worst is in the price, in fact, our view remains that as of now we have hardly seen any damage and bulk of the damage is yet to happen.
Valuations continue to remain steep and the earnings season has not inspired much confidence in my overall outlook on Indian equities sure there have been some select pockets where some green shoots are visible but that remains to be seen if these green shoots do covert to sustainable earnings growth and momentum but a more important aspect is that valuations have already priced at the current rate of estimated growth for the next 2-3 years already at current prices so if we take a look at the basket of Nifty 50 we are still trading at one of the most hefty valuations in history and currently trading around 26.5 times trailing earnings so in this scenario where current valuations have already factored in forward growth (assuming that earnings growth do finally pick up) these prices do not make a case for any investment from our analysis standpoint because as per our understanding money is always made by buying cheap and money has never been made buying expensive the only exception to that rule is that you buy expensive but there is sustainable and consistent earnings growth being reported by the company which in turn eventually makes money for the investor but in current scenario we see that valuations are steep and they have priced in forwards growth and at the same time earnings growth or momentum is missing in the market baring a few select names which we believe are minor short term exceptions so in this sort of an environment it does not argue well for buying equities from a longer term perspective and we remain of the view that floating rate fixed income assets will provide much better returns over the next 12-18 months looking at the current inflation outlook.
Rising Inflation, regular readers of this website are well aware that when Crude Oil was around 28-32$ per barrel we had clearly put out a target of 82$ per barrel and as things are going we maintain our crude oil futures target of 82 dollars per barrel but from an Indian stock market investors perspective it is important to look at prices in INR terms because it is not just crude oil futures that have gone up, the Indian rupee also has been steadily depreciating over the past few weeks and weaker rupee means higher import cost so the easiest way is to watch the MCX price. Now when we take a look at the MCX Crude Oil chart it is very clear that prices are in a strong up trend and we do not see that changing in the near term surely pullbacks in that uptrend will keep coming from time to time but eventually MCX Crude Oil will keep moving higher so that means higher input cost for India and higher inflation which means faster rate hikes, higher cost of capital for companies, lower purchasing power due to lower demand from the consumer so in such environment equities as an asset class have not done well from a historical perspective and this time will be no different.
Good Trading To You!