August Conference Call : 5 Key Takeaways

1. First up let's take a look at the most important global indices that we track in order to check the health of the markets outside India - ACWX & EFA. These are the All Country World Index Ex-US and the Developed Markets Ex-North America indices. We've mentioned time and again how important the 2018 highs are from a sentiment perspective since we witnessed risk-on parameters roll over together in 2018. It is, therefore, crucial to track the price action around these highs.

Notice that in the chart below, both the indices gave up their 2018 highs suggesting a broader market correction. While that did play out the way we thought it would, we are now looking at a potential bounceback. The indices are holding on to lower support zones and moving higher. Although the trend is sideways at best, the price drop has halted. This certainly indicates a recovery. How pronounced will that recovery be? We'll just have to wait and watch.

2. Nifty 50 is up next. In mid-June, we pointed out the positive divergence that was visible on the daily chart of the index. We've seen a recovery post that, and how! The price is now making short-term higher highs and higher lows, while also breaching the downward sloping trendline. Yes, we do give more importance to horizontal trendlines, but diagonal trendlines give early indications of a changing trend.

We're now tracking 18,300 as the next target for Nifty 50. A conservative risk management level here would be if the price moved back below the trendline. But the more important support to track would be 16,900.

3. As you know, Nifty 500 is the universe we track in our analysis. We've started tracking this indicator whereby we observe the percentage of stocks that are trading above their 200-day moving average. When this indicator pane (the % of stocks above 200dma) dips below its oversold level of 15 and jumps back up again, there is a specific outcome that plays out. The price/index rallies by 8% in the next 30 days, taking the return to a little under 12% over the next 60 days. You can see the green vertical lines signifying just that on the chart. This is definitely a chart to track when looking for a bounceback in the market from extreme oversold conditions.

4. Nifty High Beta vs Nifty Low Volatility is one of the risk-on parameters that we check for market sentiment. If this ratio chart is moving lower, then Low volatility stocks are outperforming, which means that the market is going through a lean phase. If the ratio is moving higher, then High Beta stocks are the ones to chase, in which case the market sentiment is risk-on.

You will notice that since 2021, this ratio has moved sideways. This signifies a range-bound market, which is what we've been observing. However, look at the most recent move where the ratio is bouncing off the lower end of the range. This gives us an indication of the upcoming move in the market as well. Sure the ratio is range bound, but within that range too, any indication of a change in trend is a good heads up!

5. At ASC we create a lot of custom indices to track the varied and important sub-sectors of the market. Tracking the Auto sector isn't as fulfilling as tracking the Auto, Auto Ancillary, Motorcycle manufacturers, and Tyre sectors.

So here we have the ASC equally weighted Motorcycle Manufacturers index. And it's making new highs, folks! That's not a surprise seeing how often the index constituents have come up in our recent scans and trade ideas. But what this does help with is understanding the sub-sector within Auto that is outperforming the market. And that is the goal after all, isn't it? Looking for the best trade setups!

So these were a few charts that gave us a little something to think about. What are some of the most important charts that you are tracking?

Our Premium members can access and rewatch the conference call here and the Trade Ideas here.

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

Allstarcharts Team