Thursday, May 23, 2013

Markets Are Bullish: Ankit

The following post is again a guest post by Mr. Ankit Sandhu. As I said, Elliott Waves is his speciality and he has shown another way how the waves can be numbered. Though, his analysis is slightly different from mine, but, you, as readers, should be happy that you are getting another point of view. I will revisit my Elliott Wave Analysis in a couple of days. Over to you, Ankit.

Since start of Jan 2013 Nifty was crawling and was showing signs of weakness which was very clearly visible. Every analyst was happy that Nifty was up 35% from the Dec 2012 lows. Then it started going southwards, there was no buying, valuations were high, fundamentals were not supporting. We were struck by bad news. Markets fell and Indian markets underperformed when compared to global markets. Vikas Sharma Sir did his Elliott wave analysis and it was justified because it had no signs of an impulse wave. Strength wasn’t there so we assumed it was in fact a correction wave. And possibility was there that we again might visit our 2012 lows. 

But as the markets unfolded, a new picture emerged that it’s NOT A CORRECTION WAVE but that it’s an impulsive wave. It has the structure of an impulsive wave. A new high proved that our previous analysis was wrong and that this wave’s subdivisions also clarify that it’s not an irregular correction. One of the major disadvantages of wave theory is that markets are fractal in nature and each wave is a sub division of next wave in higher time frame, so counting can change as markets unfold. Wave principle requires experience. We should also judge them by their personalities.

Because this is a diagonal, overlapping of 2nd wave and 4th wave is normal.

If you notice there is no over lapping of 2nd and   4th wave in Junior Nifty Index. This index is the closest proxy for Nifty.

When I analysed the waves’ sub divisions, some amazing facts appear that in our Indian markets second waves retraces 75-78.6 percentage and fifth wave extensions are very common. Their momentum tends to be very strong before suddenly reversing. This appears to be an important clue that we might see extended fifth waves in this cycle wave V and I am assuming this market cycle will last for 8 years from bottom of 2008 because Indian cycles have been increasing in time. And in fact if it does happen, what a crazy ride it’s gonna be.

Other confirming factors

Personality of waves
This wave has the personality of both 1st wave and the beginning of the 3rd wave, which is a state of growth picking up and confusion and low confidence in the markets. Every time markets go down, some good news comes from the govt in the form of reforms. RBI rate cuts, falling inflation rates, revised GDP and fiscal deficit targets are all examples of these good news. This is typical of 3rd wave after a 2nd wave correction. People are cautious and there is still uncertainty in global markets.

Falling commodity prices
Biggest confirmation has been received from GOLD. It has broken its 10 year bull run and will continue to fall, which means that stocks will be back in action and will outperform other asset classes. Metals, crude and other commodities will continue in down trend which is positive for India.

Global Markets
American markets are the leading players in this bull market. If you pick any world index you will see the same wave structure, that is, beginning of a 3rd wave of grand super cycle V wave. Every index, be it, DJIA, S&P 500, EURO STOXX, CAC, FTSE, HANG SENG, Nikkei 225 (which is in the beginning of a major bull rally after 20 years of bear market), has seen its lows retested and is again getting ready for a bull market. If we look at the bigger picture, global equity is bullish, interest rates cuts all over the world, America’s data is turning positive, Fed's quantitative easing is keeping the markets highly liquid.

(Pink is for DIIs and green for FIIs)
Right now in markets, only FIIs are buying which is due to high global liquidity. As the developed markets indices are rallying, the FIIs are adding emerging markets also to their portfolio. But they are here for long term. This is smart money. Global investors are adding some of its pie from India, because of that, prices are going up. On the other hand, DIIs are selling it all because they are the traders and are selling in strength, that is, they have FIIs to absorb their selling. Everyone is cautious expect the general public, which is again typical of fifth wave, but the bigger picture is only bullish.

For the near term dollar is a problem. It is likely to gain strength and will go to 58-60 levels which again will cross out the benefits that we should be receiving from falling commodities. But as rupee will depreciate, it will attract more FII inflows. Increased consumer demand for gold will prevent decrease in India’s fiscal deficit targets. So overall, there is no loss no profit situation for India. Moreover, this rally has almost completed its 5th wave and I NOW expect market to correct.

My long-term view is positive

Bull market is here. India will enjoy unprecedented growth, foreign money inflows and FDI. And I am assuming it will last for another 5 years from now because that’s how we should assume. You see, Elliot wave principles state clearly that markets move 3 steps forward and 2 steps backward. Our markets primary direction is only upwards. Markets have been and will always go up making new record breaking boom and bursts and that’s how it has been for past 400 years in the stock markets.

Remember markets discount everything and all these factors are already discounted by institutions they will buy on every dip. I am expecting a correction back to 5200-5500 only. GO long after that.

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