Looking at Monthly Charts only takes about an hour per month and is one of the most valuable exercises in our process. By focusing on the long-term, we can filter out the noise and identify what’s really happening with a stock, index, etc.
In this post, we wanted to share a few charts that stood out to in May.
The first is the Nifty Pharma Index. Despite the market selling off throughout the month before closing near its highs, money kept flowing into the winners…with the Pharma Index closing above its April’s highs.
Click on chart to enlarge view.
Relative strength in leading stocks like Britannia Industries continues. Although it didn’t break out yet, notice how it traded in the top of April’s range and then closed basically at the highs of the month in May.
It’s clear that there’s still a lot of pent-up demand in the strongest names and indexes, but what about the laggards?
State Bank of India has been the poster-child for stocks exhibiting weakness, but even it managed to catch a bid late in the month after reaching long-term support near 145. After several consecutive months of downside and prices falling more than 55%, some consolidation or mean reversion higher should be expected. The same can be said for other weak stocks that have approached long-term support and begun to bounce.
Even the weakest of the sector indexes, like the Nifty Metal Index, have managed to hold support and are slowly working their way higher. This would argue for a continued sideways trend as opposed to a continued crash…at least not until we break 1,600 to the downside.
If the weakest areas of the market are finding support and closing well off their lows, then we’re likely not in an environment where we want to be aggressively shorting stocks.
This is very similar to the conclusion we’re getting from our Five Bull Market Barometers. Long-term there are still a lot of problems in the market, but when downside targets are met and mean reversion starts, there’s no reason to be a stubborn short. There will be plenty of time to make money on the short side if/when the weight of the evidence turns lower again.
In Precious Metals’ land, Silver’s breakout above long-term resistance at 48,000 signals the start of a new long-term uptrend. We wrote more about it here, but needless to say, we think this is a big development following 6 years of sideways action.
And in Currency markets, the snoozefest continues. The Rupee has frustrated a lot of market participants in the short-term given its lack of movement, but the long-term trend remains intact. A decisive break and close below 74-75 in USD/INR would change that. That’s not the bet we’re making, but it’s something to consider as we watch this consolidation.
Overall, the monthly charts didn’t change much from April…besides the upside follow-through after last month’s tests of support.30-day risk-free trial. Or sign up for our “Free Chart of the Week” to receive more free research like this.