October Conference Call: 5 Key Takeaways

1. "Strength in Base Metals continues and ties back into the overall thesis that the market is pricing in higher growth and inflation expectations going forward. This is a positive for emerging markets."

Click on chart to enlarge view. 

The correction in Copper has taken place through time, rather than price. Zinc is pressing to new highs and Copper is likely next. If prices break above 541, we can be long with an upside target near 654.

2. "The more times a level is tested, the more likely it is to break. We're making the bet that this consolidation eventually resolves to the upside and targets 12,265 on the upside."

It's not going to happen overnight, but given how many times buyers have tested this 10,000 level in the Nifty 500, we'd expect it to break out to the upside in the months ahead.

3. "We're seeing a clear consolidation over the last month and it's now resolving to the downside. Within the longer-term context, this is still an uptrend, but the failed breakout that's just confirmed could lead to a near-term drawdown of 20-25% from current levels."

We began speaking about this consolidation in Reliance in early October and we're now seeing prices break their consolidation to the downside as opposed to the upside. If prices are below 2,175, then there's downside risk in Reliance to 1,600.

It's also exhibiting a failed breakout and bearish momentum divergence on a relative basis as well, adding to the evidence that suggests a correction has begun in the stock.

Meanwhile, we're seeing weak stocks in the Energy Sector, like Hindustan Petroleum, catch a bid in the near-term. This looks like a mean reversion opportunity as long as the stock is above 163, with a potential upside target near 200.

4. "We've finally gotten a decisive breakout above resistance near 380. Momentum is in a bullish regime. These are all positives. Any weakness towards 380 can be bought, with an initial target back near 505."

Financials are finally catching a bid on an absolute and relative basis. One of the names we like is ICICI Bank, which finally broke decisively above resistance. There are several great opportunities in the sector right now if you do the work to identify which names are showing absolute and relative strength.

5. "There aren't many short setups out there. Unfortunately, the F&O universe is limited and the names we'd want to be short are not available to short. There are a few names showing absolute and relative weakness...those are the ones we can be shorting."

United Breweries Ltd. is showing absolute and relative weakness. If prices break below 935, we can be shorting it with a target down near 800.

We hope this gave you some perspective on the topics we're focused on in the current environment. There are clear trends across various asset classes that we want to continue taking advantage of.

If you missed this 87-slide presentation, you can watch the recording and view our Trade Ideas Page for a summation of the ideas discussed. Also, make sure to check out our Q3 Playbook which was released last week.

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