These Long-Term Charts Remain Bleak

April 6, 2020

We've been talking a lot about our expectations for continued volatility and what conditions we'd need to be bullish stocks again.

In this post, we want to step back and see what some of the longer-term weekly and monthly charts are suggesting for stocks and the other major asset classes.

Here's the Nifty 50 which spent the last two years grinding slightly higher as momentum diverged negatively. So far this year, prices have fallen 40% and retraced 38.2% of their entire 2001-2019 rally...in three months. From a risk management perspective, bulls need to see 8,000 hold in the Nifty 50 or there is further downside risk towards 6,200.

Click on chart to enlarge view.

Small-Caps have been an absolute disaster, losing 2/3 of their value over the last 2 years. With prices stuck below the 61.8% retracement of their 2004-2018 rally at 4,200, the risk remains to the downside and a test of 2,675 looks likely. The continued weakness in Small-Caps has been telling us that there is a lack of risk appetite among market participants. Until that changes, it will remain a heavy weight on stocks.

The largest sector of the market, Bank Nifty, looks to be targeting a 61.8% retracement of its 2019-2020 rally, which sits another 16% lower at 14,500. For now, this sector remains in no man's land, stuck below resistance near 21,400 and above support at 14,500. Stocks as an asset class are going to have a tough time reversing if this sector continues to fall.

Here are the Nifty Mid-Caps. Much like Bank Nifty, this index is stuck between its 38.2% and 61.8% retracement level of its 2001-2018 rally. As long as prices remain below 13,800 then the risk remains to the downside, with potential support near 8,800.

While Banks had been the strongest sector of the market, Autos had led the way to the downside. As long as prices are below 5,225, which represents the 61.8% retracement of its 2009-2018 rally, then the risk remains lower towards 3,500.

Looking at other asset classes, Commodities as a group remain a mess...with Base Metals really struggling. Copper broke support at 400 after failing to break decade-long resistance near 470 over the last few years. As long as prices are below that level, then there's risk down towards the low 300s which would signal continued pessimism about global growth and likely weigh on Emerging Market stocks specifically.

Gold remains strong despite weakness in Base Metals and Silver. With that said, until prices can clear 44,500 decisively, there's no reason for us to be long. There's just too much opportunity cost and downside risk. If we do clear that level, however, our next upside objective is over 20% higher at 56,850.

As we've been pointing out, Silver remains the laggard. Until it can clear 49,000 on the upside or 32,500 on the downside, this remains a rangebound market and should be treated as such. From an inter-market perspective, the underperformance of Silver relative to Gold continues to suggest weak risk appetite for Precious Metals in general.

Crude Oil is trying to stabilize above its former lows at 1,865. As long as prices are above that level then there's zero reason to be short, but we'd expect continued volatility around this level in the coming days/weeks. Overall, we'd rather be erring on the long side than short at current levels.

The US Dollar/Rupee pair remains in a firm uptrend as long as prices stay above their former highs of 74.50. As long as prices are above that level, then the bias is higher towards 80.20.

Also, keep an eye on Yen/Rupee here as it attempts to clear resistance at 0.71 once again. If and when that level does crack, we'd expect a long-term move towards 0.838 to develop.

Lest we forget Interest Rates, which are attempting to put in a slight higher low but remain in a firm downtrend longer-term. Bonds continue to work in India, the US, and around the globe.

Based on the monthly and weekly charts discussed above, the picture appears clear. Bonds continue to work, while Stocks and Commodities continue to trend in the wrong direction.

Until Rates begin to stabilize and we see Banks/Small-Cap stocks begin to find their footing, there's little reason to expect that to change.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team