We’ve been using our “Five Bull Market Barometers” to measure the long-term health of the market and remain in the camp that risk in Equities remains elevated.
In this post, we’re going to outline several charts we think will set the tone for the broader market through the rest of the quarter.
First, and most importantly, is the Nifty Bank Index which made new relative lows this week. On an absolute basis, prices are nearing their March lows of 16,100 after failing to reclaim their 2015-2016 highs in April.
Click on chart to enlarge view.
What we’re watching is how prices react to those March lows. Is there any meaningful demand at that level? or does the trap door open and we see a quick move towards 13,500?
A lot of longs are using those lows as a stop or point of reference for their positions…not just in the Nifty Bank Index, but in most indices/stocks that bottomed around the same time. And if the largest sector of the market is taking out its lows, most of the major indices will likely test theirs.
Next, we want to take a look at two sector/thematic indexes that aren’t quite as bad as Nifty PSU Banks, Media, or Realty, but are still near the bottom of our long-term relative strength list.
Here are the Nifty Metal and Nifty Commodities Indexes, both of which have been consolidating sideways over the last two months. What we’re watching for here is which way these ranges resolve themselves.
Are these bullish consolidations following the short-term bounce we saw in late March and early April? Or is the entire March-May move a bearish consolidation within strong structural downtrends? Our bet is the latter, but if they can resolve higher that would show improving risk appetite among market participants and throw a wrench in our bearish thesis…at least in the near-term.
Sticking with areas of weakness, the other stocks we’re watching are those that have been hit most directly by the Coronavirus Pandemic and are therefore a decent gauge of investor sentiment. Basically, if these stocks keep selling off then investors are saying they’re pessimistic about the virus and its impact on the economy/markets.
You know the stocks we’re talking about. Hotels, Movie Theaters & Entertainment Facilities, Construction Companies, etc.
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