As Technicians we like to use the phrase “the bigger the base, the higher in space” when talking about breakouts from consolidations. Long periods of indecisive price action build a lot of potential energy that is then released once a stock breaks out of its range. This applies to any asset class on any timeframe because the psychology behind the pattern is exactly the same. We've written about bases before and they're common in our work, so click hereif you're interested in learning more about this pattern.
As Technicians we like to use the phrase “the bigger the base, the higher in space” when talking about breakouts from consolidations. Long periods of indecisive price action build a lot of potential energy that is then released once a stock breaks out of its range. This applies to any asset class on any timeframe because the psychology behind the pattern is exactly the same. The weight of the evidence continues to suggest we want to be long equities, so I’ve taken a look through the Nifty Smallcap 250 and identified some of the best bases that are either breaking out or look poised to over the intermediate-term.
As Technicians we like to use the phrase "the bigger the base, the higher in space" when talking about breakouts from consolidations. Long periods of indecisive price action build a lot of potential energy that is then released once a stock breaks out of its range. This applies to any asset class on any timeframe because the psychology behind the pattern is exactly the same. The weight of the evidence continues to suggest we want to be long equities, so I've taken a look through the Nifty Midcap 150 and identified some of the best bases that are either breaking out or look poised to over the intermediate-term.
The Indian Financial Services sector is broken down into three formal sector indices: The Nifty Financial Services index, the Nifty Bank index, and the Nifty Public Sector (PSU) Bank index. Both the Nifty Financial Services and Nifty Bank index have been showing great leadership, sitting just off their all-time highs on both an absolute and relative basis, however, the Nifty Public Sector Bank index has not participated to the same extent.
I think our messaging has been clear that we want to be buying equities, and buying those showing relative strength. The Nifty Financial Services index and the Nifty Bank index are sitting just off all-time highs relative to the Nifty 500, so I've done a deep dive into them to highlight the best large, mid, and small cap names on the long side. I've also included some names from the Nifty Public Sector (PSU) Bank index, but would note that it's hitting 2-year lows relative to the Nifty 500 and therefore has a much smaller representation on this list despite being part of the Financial Services sector as a whole.
In my last post I outlined the evidence from India and around the globe that suggests equities as an asset class are headed higher. I pointed out the failed head and shoulders topping patterns in the Nifty 50 and other indices that should fuel the move higher. With that being said, I wanted to outline the Nifty 50 stocks where I believe the risk is defined best and the reward/risk is still favorable.
After a strong 2017 for equities as an asset class, 2018 has started off with a bit of a change of character. Volatility is back and frustrating stock market participants, with the median of 43 global stock market indices correcting 11% peak to trough, however, as of today 31 of 43 (72%) stock markets are in a confirmed uptrend as indicated by a rising 200-day moving average. The median equity market is off 5.77% from its 52-week high and has not hit a 52-week high in 66 days, or about 3 months/1 quarter.
I don't know about you, but at face value these stats do not seem to support the prevailing sentiment that stocks are headed lower, and much lower at that. There are some valid concerns, yes, but after looking at charts from all over the world, the weight of the evidence continues to suggest higher stock prices globally. Still, many question what will be the driving force behind higher prices. Well, in regards to India I see several failed bearish patterns that could fuel new highs in the major indices.
Brazil just closed at an all-time daily and weekly closing high. These are not things we normally see in downtrends. Russia's MICEX also closed at new all-time highs. There is some serious strength coming from Emerging Market stocks and the data is still suggesting there is a lot more upside left out of this group. I think we're just getting started.
Today we're taking a look at some equally-weighted emerging market indexes that I put together and compare this group to other alternatives, like U.S. stocks and other developed markets such as Japan and Europe. There is an overwhelming theme here of rotation into Emerging Markets after years and years of underperformance. 2018 is a new year and emerging markets are leading us higher.
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This month’s Conference Call will be held on Tuesday February 16th at 7PM IST. As always, if you cannot make the call live, the video and slides will be archived and published here along with every other live call since our launch.
One of the most recent developments that stands out among the sector rotation that we're seeing is the strength in IT Stocks. We're seeing a breakout on the NIFTY IT Sector Index and we're seeing that IT Sector Index breaking out relative to the NIFTY500. So in other words, we're seeing massive breakouts on both an absolute and relative basis. Those are characteristics of uptrends, not downtrends.
Today we're focusing specifically on the NIFTY IT Index and how it's doing compared to the rest of the market. You can see here how the NIFTY IT Index is breaking out to new all-time highs and now holding above the former highs from 2015. If we're above that former resistance we want to be very aggressively long IT Stocks:
Register here for our live monthly conference call for Premium Members of All Star Charts India.
January's Strategy Session will be held on Tuesday, February 2nd at 7 PM IST. As always, if you cannot make the call live, the video and slides will be archived and published here along with all of our past conference calls.
If you look through all of the commodities on the Multi Commodity Exchange of India I think you'll find more opportunities today than at any point in the past year. I'm finding the best risk vs reward propositions in the metals and energy space specifically, not just in India but all over the world.
Today we're taking a look at Gold specifically because I think it offers one of the best risk vs reward propositions on the entire exchange:
