The strength of every up-trending market is always judged on corrections. Since the dawn of 2019, Nifty has managed to overcome multiple hurdles (i.e. Indo-Pak tension, concerns of a slowdown in the global economy and rising crude oil prices).
In fact, till February 2019, Indian indices were at the bottom of the pack amid rally seen in global markets. China (Shanghai Comp index) was the major mover in emerging markets after a turbulent 2018.
Buoyed by a more dovish US Fed and resumption of the US-China trade talks had contributed to a rally in emerging markets (EMs). However, March has proved to be decisive as Nifty has so far rallied 7 percent and is whiskers away from its all-time peak.
March saw Nifty breaking out from a three-month consolidation period 10,600-11,100 and the architect of recent rally has been the leadership sectors i.e. Bank Nifty (up 14%) & Nifty Energy (up 11%).
Even the Midcap-100 index has been among the major mover in March (rallying by over 8%). Terming the recent move as a pre-election rally won’t be a right approach as time-wise correction prior to recent explosive move has set the wheels in motion for higher targets irrespective of election verdict.
Indian markets had been devoid of sideways consolidation for the entire 2018. The index on several instances had strong trending moves (i.e. Fall post-2018 budget, EMs sell-off, IL&FS led decline or heavyweights led the recovery in July & August).
However, it lacked a period of time-wise correction. And in every healthy market, such phases are of utmost importance. We got that much required sideways phase between November 2018 & February 2019.
During this period, it digested several domestic as well as global news flow before rallying higher and outperforming global peers.
The Nifty internals suggests that recent rally has been broad-based compared to previous ones as 29 stocks from the index have outperformed Nifty so far – a perfect ingredient for a sustained rally.
We expect Nifty to continue its northbound journey and attempt 12,100 levels as per extension calculations, which coincides with three-digit Gann number of 121(00).
Even globally, strength continues to remain intact. The US markets currently are grappling with worries over the economic growth but the key indices (Dow Jones, S&P 500 index) are yet to show signs of reversal.
Post ~11 percent move this quarter, Dow Jones hit a well-defined wall of worry i.e. presence of multiple peaks coincided with four-digit Gann number of 2601(0), which resulted in a retracement.
Reversal from hurdle zone has dented the short-term structure but the overall trend continues to remain intact as it trades comfortably above its 40-week average. A throwback to the midpoint of the current Gann channel would provide an opportunity to add longs.
The weekly chart of MSCI All World index is attempting a break from the neckline of an inverted H&S pattern. A recently sharp shift in US bonds markets and concerns of growth in the global economy led to a retracement.
However, broader charts of MSCI All World index does not show any long-drawn repercussions as of yet.
In such an environment, every dip provides an opportunity to add. So, market participants should be focused on riding the trend and staying with the larger trend, rather than predicting the hurdle zone.
(The author is Senior Vice President - Research, YES Securities (India) Limited)Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.