Sep 292019

Indian equities have had an interesting 6 sessions of trade. The Sensex dropped below the Aug low while the Nifty barely managed to hold above the Aug low.

Chart 1: Nifty vs SensexNifty's price action of the last week has thrown up a couple of possibilities.

(a) Bull case:  My interpretation that the Index registered a major top in June 2019 was premature. OR

(b) Bear case: A major top is in place and the events of last week simply interrupted the decline.

If we consider (b) as the case, that leaves us with two possibilities. Either the index hasn't got much upside beyond the 11700-750 ball park or the index is going to fail just under the record high of 12103.

This leaves us with a couple of interpretation under the Elliott Wave model and in both cases, the bounce is a correction. Did the correction start from August low as an irregular correction or did the markets see a 'truncation' in September due to an unforeseen event is the question to be answered. (For those who want to get technical under EW, the decline from 12103 ended a five step minor degree A or 1 at the Aug/Sep low and markets are on a corrective minor degree 2 or B)

The important takeaway from this is that we need to be on guard - Indian equities could reverse suddenly without much warning as the upside could be done or very limited.

If we consider the case (a), the reasonable and sensible way to interpret the price action seems to be an ending contracting diagonal under the Elliott Wave model. Under this interpretation, the upsides are a little bit better but doesn't seem like one should build a big portfolio expecting a multi-year upside. The upsides may not last beyond a few weeks to a few months.

Chart 2: Nifty Weekly 3-3-3-3-3 ending diagonal

Bottom Line: To me, it makes eminent sense to wear a trader's hat and not an investor's hat.

 Posted by at 3:38 pm

  One Response to “To be or not to be…an investor”

  1. I humbly agree that Nifty is unsustainable given the high PE ratio which is more than historical average

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