1Indian Equity Markets – Its Now or Never !11 June 2013Nooresh Meraniwww.analyseindia.com www.nooreshtech.co.in
2Previous Reports from Analyse IndiaAt 5500-600 in first week of April 2013 we came out with the following report callingfor a move back to 6000 + ( Nifty did 6239 post this report )Check the blog post here -http://www.nooreshtech.co.in/2013/04/be-fearful-when-others-are-greedy-and-greedyAt 5200-5300 in mid August 2012 we came out with a detailed report mentioning a bigmove to 5800-6200 is on cards with a breakout to happen in September-October.( Nifty moved up to 6100 on expected lines )Check the post here -http://www.nooreshtech.co.in/2012/08/analyse-india-forget-the-past.htmlNow at 5750-5850 levels we believe we are yet again at a very interesting opportunityfor investors/traders. Its Now or Never !
3SynopsisIn the last few weeks markets have corrected from 6240 to 5870 levels in a short spanof time along with USD-INR making new life time high at 58.15.The amount of pessimism is increasing given the three sharp corrections from 6000-6200 band.The broader market continues to remain subdued with midcaps/smallcaps making newlife time lows.Investors are now frustrated with no returns on the benchmark index for last 5-6years.At the same time global markets have been outperforming with US and Europeanindices hitting 13 year highs.Technically the markets are standing at an inflection point where we can expect someexplosive moves in coming months.
4Nifty Technical ViewNifty is forming an Ascending triangle over the last 5 years.Three attempts at the upper boundary of 6200-6350 have been seen in 2008/2010 and2013.Lower trendline connects the bottoms of 2008/2009 ( 2250 and 2540) and the 3bottoms of last 2 years ( 4530/4770 and 5477 seen recently)With almost 3-5 attempts on downside with higher bottoms it indicates the trend isclearly up and the ideal breakout should happen above 6250 in the future.In an ascending triangle the breakout generally takes after 75% of the time is spent andthe contraction of the range is done. For Nifty the contraction gives a time period of July- October as a breakout time.The size of the Nifty triangle is 1500 points and one can expect a directional move of1000 odd points in the minimum case on breakout.
5Ascending Triangle – Generally a bullish FormationThe ascending triangle is a bullish formation that usually formsduring an uptrend as a continuation pattern. Generallyascending triangles hint a good accumulation in the scrip beforethe breakout takes place. Also in this case the upper trendlineis mostly horizontal spotting a breakout becomes easier.
6Nifty – A 5 year triangle about to contract for explosionA 5 year triangle.The contraction can lead to anexplosion. Time frame beforeend of 2013.A 5 year triangle.The contraction can lead to anexplosion. Time frame beforeend of 2013.
7Nifty – Size of Triangle is 1500 points !!The minimum size of the triangleis 1500 points.With breakdown point at 5600-5700 and breakout point at 6250-6300The minimum size of the triangleis 1500 points.With breakdown point at 5600-5700 and breakout point at 6250-6300
8Target ProjectionsGiven the size of 1000-1500 points of the triangle coming few months can be veryinteresting.A breakout confirmation may come above 6250-6300 levels and imply a target price of7000+ in that case.There are two ways to trade this move.Buy in dips to 5750-5900 ( 50 to 61.8% retracement of last move ) with a stoploss of5600 and review at 6250-6300. Risk- Reward highly favorable.The other trade would be to wait for a breakout above 6250-6300 with a stoploss ofbottom made in current move.Now that’s the rosy picture but if we were to take the alternate view point of abreakdown it would imply a huge correction taking it back to 2 year lows.In further charts we see the impact of triangle breakout and breakdowns and globalreasons to negate the breakdown possibility.
9Positive Breakout of Major Trend linesAfter 3-4 attempts on the trendlines or in triangle breakouts we see huge moves.We discuss a few old examples.The recent one big the triangle formation we advised at 5200-5300 for a breakout moveto 6000 +.
10Sensex – Triangle ( Posted in Forget the Past )Triangle Breakoutabove17550-17650.The contractionsuggests it should bebetween August toOctober.Triangle Breakoutabove17550-17650.The contractionsuggests it should bebetween August toOctober.FalseMove/DoubleBottomFalseMove/DoubleBottom
11Sensex – Did the Triangle target in expected timeFalseMove/DoubleBottomFalseMove/DoubleBottomBreakout happened between Augustand October and targets done alittle later by dec- janBreakout happened between Augustand October and targets done alittle later by dec- jan
12Sensex – Breakout move in end of 2007 led to a secularmove
13Breakdowns out of Triangles and Major TrendlinesBreakdown from a 5 year pattern can lead to a 10-20% correction.The major consideration for such a breakdown is that it leads to a long drawn bearmarket or a consolidation which takes a long time.The triangle breakdown in Mid of 2011 led to a sharp correction in broader marketsand lasted 6 months.An earlier breakdown in 2008 led to a very big downtrend erasing all gains of 2004-2008.A breakdown in 2004 led to a sharp correction for 3-5 months.
14Sensex – Trendline Breakdown before the fall in 2004
17S&P 500 – 13 year breakout13 year breakout above 2000 and2007 euphoric tops13 year breakout above 2000 and2007 euphoric tops
18The Global Co-RelationIn the good times of 2007 there was a lot of talk about Indian markets decoupling fromglobal markets.Big correction in 2008 and further moves have cleared that Indian markets do havesome co-relation which may not be exactly co-related.One can certainly say that Indian Indices are not in inverse co-relation with GlobalIndices.So if indices were to give a breakout or breakdown in coming months will need to beconfirmed with global indices trend.When we look through charts of US and European indices indicate a 13 year breakoutleading to a multi-year bull market.
19DAX – Another 13 year breakout13 year breakout above 2000/2007highs13 year breakout above 2000/2007highs
20FTSE – Above 13 year highs13 year breakout above 2000/2007highs13 year breakout above 2000/2007highsTriangle breakout of 3-4 yearsTriangle breakout of 3-4 years
21Triangle Breakout in Asian Markets – Taiwan and HongKongTriangles also seen in other Asian indices like Hang Seng and Taiwan indicates the nextmove could be a secular one.We may find Asian markets to catch up with the global peers and head up to new highs.
25USD – INR – Highly overbought and reaching a major topRSI touches 85 + levels and next couple ofWeeks could lead to negative divergencesand a major top in the makingRSI touches 85 + levels and next couple ofWeeks could lead to negative divergencesand a major top in the making
26USD – INR Co-RelationThe myth that a new high in USD-INR would lead to a newer low in Nifty has beenbroken in the last few tops at 54.3 and 57.3 for USD-INRThe inverse co-relation generally gives a direction and not magnitude in exact manner.The current move to 58.15 has hit highly overbought levels for USD-INR and we couldbe nearing a major medium term top or even a longer term one.This co-incides with a bottoming out in Nifty in coming weeks.Last corrections in USD-INR from peaks have led to a 15-20% move in Nifty.
27USD – INR – Weekly Resistances at 59-60 bandConfluence of many resistancesAt 59-60 band.We could see a major top being formedhere.Confluence of many resistancesAt 59-60 band.We could see a major top being formedhere.
28USD – INR and NiftyUSD – INR dropped 10.5% from 54.32 to 48.6.Nifty rose from 4531 to 5630 a rise of24%USD – INR dropped 10.5% from 54.32 to 48.6.Nifty rose from 4531 to 5630 a rise of24%USD – INR dropped 10.4% from 57.3 to51.35.Nifty rose 22% from 4770 to 5815USD – INR dropped 10.4% from 57.3 to51.35.Nifty rose 22% from 4770 to 5815USD – INR to top out at 59-60 and thencorrect 10% ? Leading to Nifty spikeUSD – INR to top out at 59-60 and thencorrect 10% ? Leading to Nifty spike
30Points to NoteUSA and European markets like FTSE and DAX are on 13 year breakouts crossing abovethe euphoric highs of 2000 ( Y2K Boom ) and 2007 ( credit Boom ).Asian markets specifically – Hong Kong , India and Taiwan are making 5 year trianglesand now available at the lower end of support zones.The triangle range projects a 15-20% move in coming few months with contractionpoint before end of the year.The triangle formation makes it clear that there is no middle path and one needs totake a very bullish or a very bearish stand. Given global indices/forex and asian indicesit points to the very bullish stance.For us the stand is highly bullish and to tweak the risk-reward in favor suggest buyingat current levels and dips instead of waiting for a breakout above 6250-6300.The strategy should be to buy in parts at 5850 and 5700-5750 with a stop loss of 5600and review at 6200-6300 levels. We may expect broader markets to participate at laterstage of the move.