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ARE WE IN A BEAR MARKET?

The aim of this report is to feed you with less words and more graphical data to show you the true picture of what has been happening since the year started. Many people are unable to track each inch of the markets and the inches they look at sometimes mislead them too so this might be helpful in getting them out of the dark.

Why we are in a bear market and many people cannot see it…

Nifty50 rallied another 950 points in last 5 weeks from lows of 10000 levels to high of 10950 levels leaving most people to think that the dip has been bought and we are heading back again to all time highs just like we have in the past many years…

We might even do that but the market is not about only nifty50. Is it?

In this small report i am going to point out reasons on why we might be at the beginning of a bear market (arguably already are).

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Monthly chart Nifty50

 

On January 19, 2018, i tweeted this-

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Along with this i also wrote a small newsletter as to why i feel so on various social media platforms. (Click here for my twitter account)

10 days later we witnessed a sell off in nifty from high of 11171 to low of 9951 and it took 6 months for nifty reach that high again.  That surely was a sign of greater sell offs to come but the action in broader markers is what left people hopeless. The mid and small caps crashed significantly. Almost all bull market favorites saw a 30-70% decline harming the portfolio of majority investors in a way that has still not been able to recover.

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That was surely the start of the bear market we are in right now.

Lets look at performance of different indices since Feb 2018. (Daily charts)

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NIFTY50

When we look at Nifty50 (Top 50 listed companies in India), we can see weakness of course but we still managed a higher top and have protected a lower bottom.

Now, the next chart Nifty500 (Top 500 listed companies) will clearly show a divergence signaling the real weakness in the market.

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NIFTY500

One can clearly see the difference between the two charts. This chart shows it could not sustain a higher high and clearly has made a lower bottom. Needless to say the top 500 companies combined have not turned positive since Feb 2018.

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NIFTY MIDCAP 100

One does not need to explain the pain seen on the chart of top 100 midcap stocks. A clear divergence from the blue chips post Feb 2018.

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NIFTY SMALL CAP 100

Even worse has been the situation for top 100 small cap stocks as seen on the chart.

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TROUBLE LOOMS WHEN GENERALS LEAD BUT TROOPS REFUSE TO FOLLOW..

Let us now take a look at different sectors and allow our minds to admit the true picture of what has been going on..

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Nifty METAL

One does not need to be an expert to see the weakness since Feb 2018 in this sector(Metals). A clear series of lower tops and lower bottoms in place.

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NIFTY AUTO

Another sector(Auto) which started to get weak since Feb 2018 and crashed recently.

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NIFTY MEDIA

Clear bear trend in this sector(Media) too.

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NIFTY INFRA

This sector (infra) too never recovered since Feb 2018

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NIFTY MNC

One of the darlings of the bull market this sector (MNC) also took a big hit post Feb 2018.

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NIFTY PSE

A clear series of lower tops and bottoms starting Feb 2018. (Nifty PSE)


 

Now, let us also look at the sectors which have been outperforming others. (Not that they have noticeable strength but they surely have seen relative strength as compared to other sectors.)

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NIFTY IT

Although we have seen a recent fall in IT stocks but this sector surely has relative strength over others as we can compare this chart with other charts and can make this out by visual inspection.

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NIFTY FMCG

Just like IT this sector (FMCG) clearly shows relative strength over others since FEB 2018.

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NIFTY PHARMA

Although not anything pretty but still less horrifying than others has been the Pharma sector.

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NIFTY SERV

 

After feeding your mind with less words and more graphical data, i am sure you must now clearly see that the market as a whole has been in a very bad shape since Feb 2018 and Looking at Nifty50 alone can be misleading at this point.

People close to me know that i have been an Elliot wave practitioner since many years now so at the end i will also share a ‘possible’ wave count in nifty and try to estimate the future path.

But before that let us quickly look at some important points which-when seen along with the market behavior (seen in the charts above) and the EW Count to be seen at the end will support our view.

  • The recent rally and in fact most rallies since FEB 2018 have been not supported with positive market breadth. If you compare the total stocks advancing and declining daily it will clearly show that the rallies are not being enjoyed by majority of the market.
Screenshot (82)
NIFTY50 (Daily) and AdvanceDeclineLine divergence
  • The gap between long term and short term treasury  yields (in USA) has been closing in significantly. Historically almost before every recession the yield curve tends to get inverted meaning the short term yields > long term yields.

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  • First technically damaging signs (Lower bottoms) in most global indices and sectoral indices around the world have been formed.
  • The markets at historical upper channel of the price to earnings ratio.
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NIFTY PE chart
  • This year saw the start of increase in interest rates by central banks both domestically and internationally. Such a cycle usually marks a top for equity markets.
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Domestic interest rate

I am not a great fundamental analyst so lets get back to charts…

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S&P GLOBAL 1200

This is the chart of S&P GLOBAL 1200. Believe it or not but it covers approximately 70% of the free float market cap of the world and when something like this shows technically damaging signs (Lower tops and bottoms). It must not be taken lightly. We can clearly see a slow down and might just be at the tip of the iceberg.


 

My Elliot wave stance (Medium term view)

CMP: 10850

OUTLOOK: NEGATIVE

TARGETS: 10200, 9500, 9200

Elliot waves can be subjective and the count can change if market changes its course, so one must not rely solely on the waves they have certainly treated me right along the years. So here is a possible wave count (made simple).

P.S: The wave counts can be changed if market decides to change its course so i advise you to look at the count only if you yourself practice EWP and understand how the count changes.

Screenshot (78).png
NIFTY50 WEEKLY

To avoid confusion i have made the idea of the count as clear as possible (avoiding sub divisions). YELLOW -PRIMARY. BLUE – INTERMEDIATE

Now, Nifty50 daily zoomed to the right –

Screenshot (80).png
NIFTY50 DAILY

By zooming the previous chart to the right and switching to daily chart when can see other details as well. I see the completion of Wave B (Intermediate) between 10900-11200 and then formation of WAVE C taking down nifty to 9400-9600 levels. A fall of 1200 points from here. Interestingly if this happens it will also mean a head and shoulders pattern. (The red boxes showing shoulders)

Now lets look at some other details with hourly chart to get on the same page-

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NIFTY HOURLY

The projections are made just to give an idea about the count so that we can get on the same page. Hence only EWP practitioners should look at this part.

CONCLUSION

I see market around 9400-9600 in next few quarters. The long term view shall be discussed in another article.

Also, needless to mention, the article is meant for educational purpose only and the reader must consult his/her investment advisor before taking any decision.

In this very short report,

Reasons to support my view were-

  • The negative market breadth,
  • Start of a new interest rate cycle,
  • Narrowing gap between short and long term treasury yields in the west
  • Technical divergences in long term charts
  • Technically damaging signs on charts of both domestic and international cos and indices
  • Elliot wave (possibility)
  • The broader markets study (charts throughout the article) showing the real picture hidden behind NIfty50.
  • The fact that even the sectors which showed relative strength post Feb 2018, have started to shed blood (Charts above)

Other reasons and more data will be shown in another detailed article.

-Animesh Vashisht

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