Monthly Archives: November 2016

Divergence to widen: US vs Emerging Markets

Equity markets around the world follow US market index to get overall trend of financial markets but this scenario could change now with Trump plans. It was expected that Trump victory would lead to downfall across markets but only Emerging Markets are leading the fall while US markets are touching almost life highs. Reason to this is almost found behind trump’s road map for their economy.

Key Points of “Trump”onomics:

  • To slash the highest marginal income-tax rates, cut rates of tax on corporate income and on capital gains
  • Completely abolish federal inheritance and gift taxes entirely
  • To spur Infrastructure spending and Defense spending 

Good or Bad for US ? 

Trump victory was a surprising win in US markets but it did bring some cheer in Equity market which makes us think that it was what investors think would be good for corporate while common men may have some hiccups. Why it bought such a huge buying in US ? Answer was straight from Trump campaign highlight:  To slash the highest marginal income-tax rates, cut rates of tax on corporate income and on capital gains”  Corporate balance sheets and High networth individual spending power would getting stronger with tax cut and in this anticipation money started to flow from Corporate bonds to Equity markets. But on the other side it would widen inequality i.e., Richer would get more richer. So inflation could pick up in real estate segment which would be good for sometime but not for longer term

Completely abolish federal inheritance and gift taxes entirely was thought for common men. This would bring some relief on tax pain to individual who has received gifts and some properties in Inheritance. In all this is a good factor but some might use this is a tax evasion but the ratio would be negligible which is ok! Most crucial campaign point was Boosting infrastructure spending which bought much needed rally in steel prices after hitting multi year low last December. This would also cut down unemployment to large extent which could in all again help to boost inflation in country which they are starving since years. But the plan of $550bn approx spending could increase some burden on Government.

Summarizing overall picture of his plan i feel good days are ahead for US markets.  Already stocks are zooming up which has increased bond yields meaning people are now having trust on corporate reversal. This would result in strong dollar which would bring back investment for Emerging markets to US markets. Even second thought could be that we may see early pause to on going bond buying programmed if we see uptick in inflation and rate hike! The biggest challenge to trump would be felt after few years which is Trade deficit. As dollar gets strong, domestic manufacturing would go up but that would also means that import is going to be more cheaper. This was a problem back in 2013 when we had felt same pinch of currency war. So Trump should keep a tight watch on trade deficit.

Technical View on Dollar index

Dollar index which measures dollars strength vs Other currencies is also in a rising trend and supporting my view stated above.


Above chart is a dollar index weekly chart and as we could notice at bottom that momentum is just catching up while on the charts it has given a 2 years consolidation breakout above 100 level last week. Secondly it also moved out up short term upside trending channel fueling in more support to strong dollar. Now we talk about support on the downside it would be 96 which is the blue 50 weekly average which is acting as strong support since late 2014. 

Technical View on Dow Jones Index

Now lets look at the chart of Dow Jones to get Trump victory more clearer

dow_theoryAs we all could see in attached weekly chart of Dow Jones, we have given a Double Bottom breakout with a confirmation neckline at 17950!  Last week also confirmed breakout of a downside temporary correction by moving out of that channel which exactly took support at neckline making Double bottom target 20450 more rock solid.

So we could confirm from above that good time for US is ahead atleast for time being

Emerging markets in Trouble?

Fortune of Emerging markets seems to have changed overnight. Emerging markets were expecting Clinton to come in power and we could make at obvious reasons why from Trump road map. Two biggest negative factor for Emerging markets: Firstly; Strong dollar and rising rates in US would trigger a good sell-off in emerging markets. This seems to have already started as since the trump victory, emerging markets have seen outflows world $7bn from their equity. So for sure its going to be some trouble ahead in emerging stock market indexes. Secondly: Strong dollar would raise cost of exiting finance with emerging economy corporate have raised from outside their country. This would burden balance sheet which could add more trouble to companies. So in-short currently we should avoid emerging markets.

Technical view on MSCI Emerging market index

MSCI Emerging market index measures a pool of selected stocks from emerging markets and it has also followed the path stated above i.e., Sell-off. 


So as we could notice in the weekly chart of MSCI  Emerging market index above that it had given a inverse H&S breakout few weeks back as Clinton was expected but now it has proved to be false breakout and sell-off could be witnessed easily. Though one more close below neckline at 868 is required bit indicators have started weakening.

Global Forecast

After analyzing US vs Emerging markets on Trump win, i could sum up that Emerging markets are going to have some tough times in near future while US markets could out perform. Surely, exports from Emerging markets are going to take a hit for few quarters but that wont be completely avoided by US corporates as still emerging markets enjoy Low Labour Cost. And emerging market governments such as India and Indonesia are taking strong steps to attract Foreign capital which could be fruitful for some sectors as they have Demographic opportunity. 

But as of now we could expect Divergence between US and Emerging markets to widen as we could already mark in the graph below


To end up, divergence might widen for few weeks more but ultimately now its would be good time to pump in some money in emerging stock markets such as India, Turkey, Indonesia and Thailand where Domestic demographic  demand would start inflating corporate profits soon.

Two close Confirmation

Nifty has been “Demonetizing” itself since 9th Nov and it has now triggered my much expected Short call Below 200 day SMA with two consecutive close below it. Though many safe traders wait for a third confirmation but i preferred to go short today itself as a intimated in my previous post.

Previously recommended Strategy:


So i believe positional traders have sold if not yesterday then today when we opened way positive. Now the picture has turned completely negative for the short term and we can say any rise towards 8700 is opportunity to sell. Technically indicators on daily time frame are surely in oversold zone but remember even if indicators are in negative zone, we could still go more deeper. So where indicator limits itself, Elliot Wave comes into the front seat. So as of now counting close that we are into complex Corrective Wave pattern and the upside should be capped at 8700 while the downside target could be 7650! though there is always alternate count, but currently situation calls for 7650 on positional basis. Those who has gone short on my recommendation below 8120 , keep my previous post targets in mind to book on shorts. Follow strict Stop loss as per strategy above…

See you guys soon now at 7800 or 8550 whichever earlier!!

IT Sector in trouble?

Long term investors who have been investing since 2 Decades would be having atleast one IT stocks in their portfolio but the charm of IT stocks seems to be fading out. Since last year we have been witnessing under performance from this sector and now finally it seems to losing complete long term strength.


Above chart is of a NSE IT index and the time frame in picture is weekly. There are two things to be noted technically in this chart, First: Index has been trading in lower channel since the start of 2015 and we are about to break this channel on downside next week which could trigger sell on all Blue chip IT stocks from Long term portfolio. So a trade below 9400 on the index is going to be a first confirmation. Second: Index has traded and closed below 200 Week Average for the first time since 2011 last week…..But looking at indicators may be a pull back could be witnessed. Though not sure of such a pull back so would recommend to start off loading IT stocks on each rise from next week. On the upside resistance could be 11400 while downside the valley is deep!

Some IT stocks charts supporting the fall

Infosys: Stock has closed below 200 Week average with volumes


TCS: Stock has just started dipping out after a consolidation of 2 weeks so its better deal to short TCS then Infy at Current levels


WIPRO:  Stock has already been hit due to many fundamental reasons so looking at chart, its a completely avoid trade at this level for any side


HCLTECH:  Stock has been outperforming other blue chip IT companies and its only IT Stock still trading above 200 day average ..



So now next week we need to first wait for NSEIT Index to give confirmation of trading below 9400. 

Looking at the volatile markets and uncertainty ahead we could go with a spread among IT companies….

Sell HCL Tech and Buy WIPRO…....

Will post again if we get some confirmation!!

500/1000 points to be sucked out of Nifty?

So Finally after 3 months of patience all my downside targets upto 8150-8250 has been achieved. In my previous post i mentioned about a crucial pattern “Multiple H&S” which had a neckline at 8560 and we did respect it on closing basis with targets on downside touched in just one day due to unexpected event. Demonetizing 500 and 1000 currency notes have turned charts of Nifty more cruel. Technically there is always a alternative count and for my previous count of bottom at 8150 , alternate target count was 7300-7600 which is now seems to be coming. … true and am not scaring you guys!!!  Though for a confirmation we need to wait for Nifty to close below 8150 which is 200 day average and also previous bottom count. Market may not see Free Fall from here but gradually we may get there!! On the upside we may now have a ceiling at 8580, which is strong neckline resistance as market with red horizontal line while crucial 50 day average is 8690 is to be breached for bulls to be back in drive!


Now looking at some long term charts, Monthly on Nifty, we could see how crucial is 7400 support line which is intact since the low of 2008. Support line level of 7400 is also coinciding with at Retrenchment level of recent rally of 6825-8960..So stay alert if we close below 8120!! 



Fundamentally what could justify my view??? ….Answer : Consumption story! The recent step of government is surely a game changing for a long term story and growth of India but a short term to medium term, its gonna hit balance sheet of companies. Q3, and to some extent even Q4, would see a great fall in demand of goods and services. Purchasing power of most individuals would take a hit as cash is completely sucked out and so is black money. A common man would cut down on extra purchases for a time being which could hit sector such as Auto, Capital Goods, Real estate, Cement and  Textile industry..  But on defensive side sectors which are daily needs such as FMCG, Pharma and to some extent Education can do well. So its best time to accumulate stocks of Defensive sector while wait for few months to buy other sectors.


Risk Takers sell on rise if we breach 8120 for December/Jan expiry with upside Stop loss at 8700 and targets on downside 7800/7670/7450

Safe traders avoid any trading for next few weeks and sit on liquidity to purchase for long term below 7700!

Will update next if we breach 8700 or 8120!! Until then Trade safe!!

Humpty Dumpty had a great fall!

Humpty Dumpty Finally had a great fall from the 8550 wall! But for me this fall was interesting as it was anticipated on charts since long time. In my last few posts, strategy had remained to be Sell on rise while for safe traders i had been recommending 8600 PE Novemeber…Here’s a snap short  of previous few posts…

Strategy from 16th October: Recommended 8600 Puts for Safe traders



Strategy from 29th September: Recommended 8600 Puts for Safe traders


Strategy from 14th September Recommended Sell with lower Targets


Strategy from 26th August: Head and Shoulder anticipated


So  am sure those who have followed my previous 4 posts on Nifty in last 2 months, they are into Huge profits as have been continuously recommending 8600 PE longs  with tgts of 8550/8300/8150…

Technically, Nifty has entered Corrective Wave 4 of a larger trend and the fall is always with heavy volumes as common traders would think that we have started bearish trend again BUT THATS NOT THE CASE! This fall is purely a short term profit booking before we start WAVE 5 move back in the direction of larger wave. During this course of correction for a medium term time frame, Nifty charts have emerged with a rare corrective pattern of “Multiple Head and Shoulder” on Daily charts. I had already anticipated this pattern on 26th August post but didnt expect it be with a Multiple structure. This pattern is surely a bullish reversal but before that we may see some pull back and nifty would give chance to those who missed my call earlier…“Something is better than Nothing”….


As outlined with Red lines, multiple H&S has got breakout confirmation at neckline 8550 which was also a 100 day SMA making breakout more convincing. But yesterday we have taken a strong support at downside channel support which is intact since last 2 months.. So may be a pull back could be expected until neckline at 8550 as marked with red horizontal!  That could be entry point for those who missed out earlier for shorts.

On the downside, target from H&S is at 8100 which is coinciding with other multiple levels of 200 day average and Wave 4 Support. So it makes our target more probable..But to be on safer side we would book profits on shorts near 8250


Book 50% Profits on 8600 PE NOVEMBER ,which would bring down cost of holdings to almost Zero as price has doubled since recommended. Keep a trailing sl of profits at 8650.. On downside cover all shorts near to 8250-8300 Spot levels..

Will get back to you again if 8300 or 8650 is triggered now!!