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
All the basic filters/scans
indicate a positive environment but the discretionary side says to err on the
cautious side. The solution, to me at least - seems like the middle path – not go
to full allocation.
Observations (Charts below)
1
– The basic 40 week moving average filter shows all major indices above it
except for IT & Pharma.
2
– BUT, on the weekly charts – seems like we have Doji’s on the Nifty,
Bank-Nifty & the broader Nifty 500 indices. All 3 indices have major
resistance areas above and the Doji formation is hinting at some indecision
here. Since Banks have the highest weightage in the Nifty index, should look at
that more closely for clues. The 20500-700 range on the bank nifty is a
significant resistance zone and looks like we are testing it for the fourth
time !. Some consolidation here and then a breakout past these resistance zone
by the Bank Nifty & Nifty500 would be a major positive from a technical
view point.
3
– On the monthly update end January (Monthly Update) the moving average based system flipped to buy
Nifty while the momentum based rule is still in bonds so there is a 50/50 split
there.
4
– The Nifty/Bond ratio for the total return indices has inched up above its
40-week moving average as bonds took a tumble last week since RBI held rates.
5
– Metals & Energy are still leading in terms of the relative strength ratio
scan. But the Auto index has slipped to rank 6 while it was at rank 4 just last
week. The Infra index seems to be making some good moves and closed the week
above a major resistance zone.
6
– Now for the bad news, Nifty PE ratio is now above 23 and Nifty vs
Earnings (indexed) is now in a warning zone as after hitting 100% this has led
to corrections (previous tops were in the 107-110% range). History
suggests high valuation tends to be followed by low returns in the long term,
this does not necessarily mean a crash though, just that returns can be tepid
from a 1/3/5 year perspective.
Chart 1
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