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Last Updated : Nov 07, 2018 10:22 AM IST | Source: Moneycontrol.com

New highs remain elusive for Samvat 2075: It will be the year of consolidation

As the period is coinciding with Assembly elections in the country, the market would remain volatile and subdued until at least June 2019.

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Markets witness volatility and there are factors such as political or economic which may impact your investments both positively and negatively. As a result, your investment decision may go wrong because of these factors. Here are five important reasons you would have to change your asset allocation:
Markets witness volatility and there are factors such as political or economic which may impact your investments both positively and negatively. As a result, your investment decision may go wrong because of these factors. Here are five important reasons you would have to change your asset allocation:

Mazhar Mohammad

As we bid adieu to Samvat 2074 and welcome Samvat 2075 by offering prayers to Laxmi, the goddess of wealth and prosperity, we have already witnessed a lot of destruction on the market since January 2018.

Unfortunately, much of the wealth created in recent years has been wiped-off in the current year due to several local and global factors.

On a net basis, the market has not made much progress as indices are almost trading around the same level where Nifty 50 signed off during the last Muhurat Trading session on October 19, 2017 at 10,146 levels.

In fact a lot of wealth destruction has been seen in individual stocks that are trading far below their equivalent levels of last Diwali and this would enhance the curiosity of investors to know more about market direction in the new Samvat.

Unfortunately, market trends across the globe are not upbeat as well.

Global trends are bearish:

Market trends across the globe are not looking that favourable after a prolonged multi-year upmove witnessed across the world.

Macro trends appear to have conspired against this strong bull run with challenges like tight liquidity conditions, soaring yields, strengthening the dollar and crashing emerging market currencies usually acting as a recipe for disaster in equity markets.

This has resulted in global financial markets appearing to have registered major tops in 2018. There are striking similarities with sell signals on long term charts across the globe.

In the developed market space Dow, FTSE and CAC has corrected by about 13 percent from their respective 2018 tops, whereas DAX is down 18 percent with a head and shoulder reversal pattern on monthly charts.

Among emerging market space especially from BRIC economies Brazilian Bovespa and Russian RTSI corrected by about 22 percent whereas Shanghai is down by about 31 percent and Indian Nifty by 13 percent.

Interestingly, in the last couple of months, India seems to be the worst performer in this space whereas Brazilian Bovespa completed its correction in June 2018 itself and is now hitting new lifetime highs.

Russia and China, in the last couple of months, are moving flat as if they are stabilising but all the indices registered sell signals on long-term charts suggesting that rallies, if any, will not sustain beyond a point.

Moreover, now the focus of global markets is shifting to US mid-term election of November and it is feared that if this election goes in favour of Democrats then it may trigger a bear market for Dow which in turn shall adversely impact all the world markets without any exception.

New highs may remain elusive for Samvat 2075:

Without an iota of doubt, the recent correction has substantially damaged the larger trends of this bull market which has already played out to some extent as Nifty tumbled down by around 13 percent from highs.

This correction appears to have significantly altered the outlook for the next couple of quarters during which it shall remain under pressure.

For the time being, all the global indices almost appear to have tested their interim bottoms registered somewhere around March and looks ripe for a pullback rally and the Nifty is not an exception to this phenomenon which is already on a pullback mode.

In the best case scenario, we expect this pullback to have a target of around 10850 or even close to 11000 before resuming the downswing.

The subsequent correction post such a pullback shall have a target of around 9900 - 9740 levels and in the worst case as pointed out by a ’10-year old pattern’ on the long-term charts, our worst case target will be in the zone of 9100 - 8900.

This will materialise only when Nifty decisively breaches 9700 levels. This worst-case target is also in line with the historical behavior of Nifty during major corrections in which it shaves off 25 percent from the top before bottoming out, as happened in the years 2010 and 2015.

Interestingly corrections of this magnitude were also witnessed in the erstwhile bull market of 2003 – 2007. By Neo Wave logics major corrections will consume more time to complete the corrective patterns, before ushering in a sustainable upmove, than the time taken to rally.

Hence if we presume that this corrective structure is in progress from January 2018 highs then minimum time it should consume to complete should be somewhere in March 2019 as Nifty was in vertical upmove from December 2016 lows of 7893 for almost 13 months.

As this period is coinciding with major election event in the country market shall remain volatile and subdued till June 2019. Major move if any can be expected only in second half of 2019. Our other observations on Time analysis also pointing out that there may not be new highs beyond 11760 for Nifty50 till March 2020.

Themes for new Samvat:

For investment purpose market participants can still adopt a contrarian strategy by focussing on underperformers from PSU Banks, Metals, and Capital Goods and selectively from real estate sector.

Some of the PSU Banking counters may emerge as dark horses as the IBC process is gaining traction. Some decent money can be made by investing in select names from this space.

Similarly, metals still look attractive despite their underperformance. Even a catch-up play can deliver decent returns from this space as some of them are trading below 2008 levels.

The author is Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Nov 7, 2018 10:22 am
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