Nifty climbs wall of worries to march ahead; what should investors do?

Ashish Kyal

Nifty in June has continued to rise despite an increased number of cases of COVID-19 and escalation in India-China border tension.

This simply proves that markets move ahead of the events and should not be traded based on the news. The only thing that works is looking at the charts and applying the various techniques that have a proven track record.

Nifty has continued to climb further on the back on negative events and the increased COVID cases.

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Ashish Kyal, CMT

Founder|Waves Strategy Advisors - wavesstrategy.com

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When Nifty bottomed out again near 9,000 levels there was a series of bad news. Despite all this, both Nifty and Sensex have continued to rise sharply after forming a low near 9,000 levels in the current upswing.

This up move has been sharp and fast and resulted in nearly 1,200 points rise in just 6 trading days.

Post that, there has been sideways action but the near-vertical rise was sufficient enough for the majority to be again taken by surprise or rather shock.

News events over the past few weeks – “Nifty moved sharply despite the worst GDP expectations post-independence, locust attack, cyclone, and COVID-19.

Despite all these negative news events markets are continuing to inch higher which is going to take majority by surprise or rather a shock, who believe that market moves based on the news.

We believe that market discounts the news in advance and moves ahead of the events and yesterday's movement was a clear indication of the same.

The reason for reiterating this is to highlight that events are not responsible for financial markets movement and it moves independently to that.

What majorly moves the market are Time cycles and in this research, we are combining the entire long term to the short term cycles together.

Cycles from Monthly to smallest Time frame charts – for a cycle practitioner the most important aspect is to understand that there are multiple cycles nested together. Prices behave in a cyclical fashion and cannot be independent to it.

Everything in nature and financial markets is governed by cycles right from the Solar Cycle which is 11 years, Lunar cycle of 28 days, Seasonal cycle, Economic Kondratieff cycle of 54 years, Decennial cycle 10 years, Presidential cycle of 4 years and many more.

It is our effort to understand the various cycle currently being active on the given asset class and see where we stand with respect to them.

The simplest way of cycle identification is to see if there are low being formed in a systematic fashion.

There are various tools available to Detrend the prices and understand the underlying cyclicality. J. M. Hurst’s has brought forward Hurst’s Cycle analysis which has opened up another realm of looking at markets and timing it right from the smallest time frame to the biggest degree.

For a cycle enthusiast here is an eye-opener – While I was deriving the actual cycles based on different advanced methods each of the cycles that we are talking were derived separately. It was only later when the independent cycles were put together the synchronization across time frames simply thrilled me.

11-year Solar cycle is 3 Harmonics of 36.82 months, which is 2 Harmonics of 80 weeks cycle, which is 4 Harmonics of 20 weeks cycle, which is 2 Harmonics of 55 (Trading) days cycle, which is a combination of much smaller cycles. So each cycle is nested to others by the harmonics of 2 or 3.

So, for trading and investing it is best to pay attention to Cycles and not the news or events which mostly lag the price action! We will publish subsequent research on Cycles. Keep a track of this column.

(The author is CMT Founder of WavesStrategy.com and Ashish Kyal Trading Gurukul)

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