We've been writing about how the momentum is to the upside for the last few weeks, but now prices are testing overhead supply across all the major Nifty indices.
If you haven't read our last few posts we'd highly encourage it, as they outlined our shorter-term views within the context of the long-term trends.
If you're all caught up, then let's take a look at the levels we're watching in the Nifty 50 and other indices.
Here's the Nifty 50 running into overhead supply near 10,000. Momentum failed to reach overbought territory despite the more than 35% rally since the index's March lows.
The market remains a hot mess where we're preferring market-neutral trades, however, some absolute trades are appropriate when the reward/risk is skewed heavily in our favor.
We outlined some favorable longs and shorts earlier today.
Another way of skewing the reward/risk in our favor is by looking for "big bases."
The way we learned it is the bigger the base, the higher in space and this is certainly a big base. And the reason we like looking for base breakouts in this environment is two-fold.
First off, big bases take time to form because they are caused by steady institutional accumulation. Mom and pop investors aren’t the ones creating this type of pattern, so we know that there’s underlying demand that will support prices if they do move lower.
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?
Yesterday in our Monthly Conference Call we discussed relative strength in detail and how we're using it to identify opportunities in the current market environment.
Today we wrote a detailed post expanding on our thought process, which we'd highly encourage you to read before continuing with this post.
In this post, we're going to outline several market-neutral trades we think are actionable today.
Yesterday in our Monthly Conference Call we discussed our preference for market-neutral and uncorrelated trades given the choppy environment that continues for stocks on an absolute basis.
With that said, today we're taking a look at a stock with clearly defined risk and a heavily skewed reward/risk on the long side.
This is our monthly conference call for All Star Charts India Premium Members where we discuss ongoing themes throughout the Indian Stock Market. We employ a top-down approach and consider the global behavior of the four primary asset classes: Fixed Income, Currencies, Commodities, Equities, before moving into Indian stocks.
From a stock market perspective, we begin by analyzing all of the Nifty Major and Sector/Thematic Indexes, as well as some of our own custom indexes that help us understand how the average Nifty 500 stock is performing. After identifying the clearest trends at the index level, we outline which stocks are best positioned to take advantage of those trends.
By focusing on the core tenets of momentum, relative strength, and market trend, we put the probabilities of success increase on our side. We'll do our best to lay out our weight of the evidence conclusions and walk you through the steps of how we got there!
The weight of the evidence remains mixed and suggests that there will be winners on the long side, winners on the short side, and a lot of stocks in the middle that aren't going anywhere.
An easy way to view that is through our five bull market barometers, which continue to suggest we're in a bear market. As a result, we're focused on the best opportunities on both the long and short side.
In this post, we're going to outline which area of the market we're looking to short and add several individual stock trade setups to our list of open ideas.
Let's start at the sector level. Nifty Commodities remain below the 38.2% Fibonacci Retracement of its 2020 decline at 2,635. With momentum in a bearish range and stuck below this level, then it makes sense to be erring on the short side and looking for a move back towards the lows near 2,075
As Market Technicians, we don't like catching falling knives. Today we want to reiterate several areas of the market that we either want to stay away from completely or even be shorting if you're into that sort of thing.
Plus we'll add a new index sector to our watchlist that's in danger of becoming a "falling knife" of its own.
Here's the leader of the weakest stocks, Nifty PSU Banks, breaking down to new all-time lows on an absolute basis. When bullish momentum divergences fail to spark any sort of upside traction, that shows that sellers are remaining aggressive even at lower prices and that the downtrend remains firmly intact. If prices are below their recent lows of 1,220 then we're looking for further downside towards 1,010.
