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.
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