The picture does look like a top H&S. Besides, the pattern is showing up where it should- at the top of an advance. Now it has proceeded to break down and the target comes to roughly around 11250 or so. We are almost there, shy of about 50 points or so. With that move, the implication of the pattern gets over.
The RSI has shown weakness during the push to new highs and is now on a retreat… Trend break and moving beneath the last well defined support near 11550 are signals that confirm the bearish divergence on the Rsi on weekly charts. This warns us not to expect immediate gains in the market.
Question is whether this can be a harbinger of a larger change to the downside?
Nifty has been held up by the efforts of a few stocks. The major section of the market is struggling anyway and is far from the health being displayed by the Nifty. Hence bearishness in Nifty is going to emerge only from actions of large cap stocks. The mid and small cap stand smashed already and have not recovered.
Large caps are mostly held by institutions. These players need changes in valuations to make them sell. Or, a shift in market expectations across a longer time. Election results could certainly provide the latter trigger. Earnings have been mixed for Q4 and one of the main reasons for not selling out is the fear of missing out on upsides in case the Bjp returns to power. But all that can change by the end of the month. To what extent will be decided by the results. Historically, we have seen markets move up from election results more often than they have declined. Cycle studies indicate that a fractured mandate may create some ranging action for the second half of the year.
Hence this time the election results do hold the key. If outcomes are unpalatable, Nifty has room to decline to around 10600.
These are non-technical factors, one may say, but it should be realised that in the short term it is all about Pricing and this is totally based on Momentum and Sentiment. Both of these factors change from day to day and even intra day. Also, they feed on one another in a kind of a limit cycle.
Since we are speaking about an event that is about 2 weeks away, we have to focus on Pricing and hence factors that impact the Sentiment which will drive the momentum which will drive sentiment and so on. As we go closer to the event, no one will be speaking about whether stocks are trading at valuations or not.
Therefore across the next 10 days, any factor that can influence the sentiment will become important. People are nervous but the sharp cut of the last two sessions would have seen a good chunk of leveraged longs being sold out. To that extent the market is lighter. Chances are that shorts are in the system now, something that has not been so for a while.
Light longs and shorts present can be a potent mix for a rise if good news appears. Money flow to the market remains consistent. FII selling is light and FOMO continues to keep buyers locked in. So, while we prepare for a lower zone, we should be equally ready for markets to move up in the event of some surprisingly strong showing by NDA.
I realise that this is not the kind of pat Yes/No answer that many people look for but if the market is not ready to provide it, how can my analysis say different?
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