Since our last post (which was quite a while back), Nifty has finally managed to hit the 11300 mark. Indian markets have spent quite a bit of time in creating a base before breaking above the 11000 high and the movement since has been swift. The price action on the upside looks incomplete and so there is still room for further upside. However considering Nifty is already near 11388-11450 zone which would be a measured target for the rally, a pull back and retest of 11180-11227 gap zone and possibly 11000-11100 area is likely . If the rally is to remain intact the price areas around 11180-11227 and 11000-11100 may be able to provide support to the longer term trend. Chart Below:
The base formation before the current rally has also eliminated a lot of possible wave counts that would have signaled a clear downside. Overall from a medium term perspective the current rally has the potential to extend to 11900-12500. This is in contrast to what was mentioned in the previous post. This change of stance is largely thanks to the price action that has resulted in a base formation for the current rally.
Most people focus on developing their market outlook on basis of election outcome but as we have outlined numerous times on our blog, price trends often unfold before actual events to the extent that sometimes it is possible to make an educated guess on outcome of the events based on market action.
One of the most striking example of this phenomenon was the outcome of 2014 general elections. Almost everyone would remember the rally that extended for months following the 2014 general election results. However what goes unnoticed about this rally is that it actually started good 9-10 months before the election results. Chart Below:
The chart above shows that while their was a major rally post 2014 election results, there was an almost equally good rally (magnitude and time wise) that occurred leading up to the election results. So the 2014 election results didn’t really ‘create’ a new trend, but instead reinforced a trend that was already in place for months before the election outcome.
The current rally in the market should be looked at in a similar vein. Here are the broad election and market predictions based on the current Nifty price structure:
- It is very likely that the 2019 election result would lead to formation of a relatively stable government. So a hung assembly is a very unlikely outcome.
- The 10000 level on Nifty is probably a multi-month low (and possibly a multi-year low as well). So even if we see some new post election result alliances that lead to some volatility before a stable government formation, these levels are unlikely to be broken.
- At the very minimum we expect the Nifty rally to extend to 11900-12500 levels. In the worst case scenario we may see a major correction develop from these levels which might bring us back to retest of 10500-11000 zone. However such dips would likely be a buying opportunity for bigger gains later.
- The best case scenario for Nifty point to much higher levels, however we would exercise caution in making big bang bullish predictions and instead focus on price action as it develops over the next few months to figure out measured targets, specially in light of point 5 below.
- From an investment perspective the Nifty MidCap Index and SmallCap Index are still not out of trouble. The Nifty Midcap Index may already have a bottom in place, however it has yet to confirm it by a corrective price action that refuses to go below February lows. The Nifty Small Cap Index still looks weak and odds are high that it may likely make new lows below it’s February 2019 low before it bottoms out for good. Overall between the two the Midcap Index looks stronger. Charts below:
Nifty MidCap100 Index:
Nifty SmallCap Index:
Alternate wave count scenarios for Nifty will be discussed in future posts in case the need arises.
