Note : This is not a recommendation and I am not a registered analyst,
these are just data points and an assessment of the positives and negatives
from a longer term point of view.
Nifty Weekly
Data points suggest that this is
not a favourable environment for equities and does not warrant fresh allocation
at these elevated valuation levels. Risks to this are that there could be a
momentum fuelled blow-off rally but I guess the probability of that happening
is low. Data suggests that the higher
probability scenario seems that we may linger here or correct.
Observations (Charts below)
1
– Nifty PE ratio is a tad over 22 and going by history this zone above 22 has always
led to corrections within a 6 month to a 1 year time-frame.
2
– Buy & exit rules based on weekly data still are in exit mode. The
Nifty index is struggling at its 40-week moving average and as per our monthly
models update for December end, the rules suggest a positioning in bonds. – so,
all in all – risk off for now.
3
– The Nifty/Bond ratio for the total return indices is below its 40-week moving
average suggesting that over the longer-term bonds may outperform Nifty.
4
– Metals & Energy are still leading in terms of the relative strength ratio
scan and have been the clear leaders of this rally BUT are now at multiyear
resistances. FMCG is now at rank 4 suggesting a shift to defensive's is building
up.
5
– The FMCG/Nifty ratio is now above its 40-week MA and testing its upper range –
seems to be a shift to defensive's which in turn supports the cautious view.
Chart 1
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3
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4
Chart
5
