In yesterday's Chart Summit, we presented our view on the major asset classes around the globe and noted what we need to see before getting bullish Equities again. (You can watch the full videos of all the presenters for free.)
Unfortunately, current conditions suggest continued volatility so we're looking for short setups to take advantage of it in the coming days/weeks.
Let's take a look at our broader thesis and what stocks and indexes we're shorting to express it in the market.
Since late March we've been watching to see how the counter-trend rally in stocks would develop...and while a few stocks under the surface continue to rally, the Nifty 50 remains stuck below its 2015-2016 highs and most stocks remain in downtrends.
Today we saw the Nifty 50 fail to hold above resistance at 9,000, providing us with a clear level to trade against on the short side to see if bears can retake control of this market. If we do see sellers step in here, our near-term target is 7,900, but a break of that level would suggest even further downside towards 6,900.
Click on chart to enlarge view.
With a few hundred points of potential upside and several thousand points of potential downside, the reward/risk is very much skewed in favor of the short side.
This type of pattern is not just happening in Indian stocks.
Here's the Russell 2000, which tracks US Small-Cap stocks, retesting resistance at its 2015 highs and starting to roll over as well. This pattern is also appearing in the Stoxx Europe 600, German DAX, and many other important global markets. Combine that with the strong bid in Bonds, weakness in Commodities, and the weight of the evidence very heavily points towards further downside from current levels.
Here's Bank Nifty in a very similar position, failing to reclaim its 2015-2016 highs. As long as prices are below 20,750, there's risk down towards 17,575 and potentially 13,500 if that level breaks.
In addition to shorting the indexes, we're looking for individual stocks with very clear reward/risk propositions like the ones presented above.
Here's Bajaj Auto failing at former support. As long as prices are below 2,450, we can be fading any strength towards that level and looking for a move back down towards 1,910.
