The Nifty Public Sector Bank and Media sectors of the market have been laggards for a while, but we’re now beginning to see signs that rotation into these areas is ahead.
Months ago we outlined that several equal-weight indices were coming back down into support and that getting long against that level for some mean reversion was prudent. That thesis has worked out well.
A great example of this playing out is the Equal-Weight Nifty Auto Index which has rallied nearly 20% from those lows.
Click on chart to enlarge view.
Same thing in Energy which has rallied more than 15% after briefly undercutting support and quickly reclaiming it.
Today we’re seeing a similar setup in the Equal-Weight PSU Bank Index which has undercut its 2009 lows and reclaimed it. This confirms a failed breakdown and bullish momentum divergence and suggests that mean reversion is likely if prices hold above their recent lows.
The Equal-Weight Media Index is very close to confirming its own failed breakdown as well, needing to close decisively above the 2013 lows.
If the rotation we saw propel Autos, Energy, and some other sectors of the market higher over the last few months repeats itself in Nifty PSU Banks and Media, then we certainly want to be looking at individual components within these sectors for opportunities on the long side.
In the coming days, we’ll be releasing a post for Premium Members which outlines which sector components are at long-term inflection points and could be great vehicles to take advantage of this theme.
Thanks for reading and let us know if you have any questions!