Sensex hits record high, but wait 10-year data suggests November belongs to bears

Moneycontrol News

The sentiments of Indian investors are on a high as benchmark indices touched a fresh record high in the month of October, but anecdotal evidence suggests that November will not be an easy month for the bulls.

The Nifty50 rose to a fresh record high of 10,425, while the S&P BSE Sensex too hit a lifetime high of 33,530 on Wednesday, fuelled by strong macro data.

As we step into November, the fears of bears taking control over D-Street remains high as last 10 years data suggests that in seven out of ten years, the S&P BSE Sensex closed in negative.

However, analysts’ tracking D-Street beg to differ. They are of the view that the rally which started in October after two months of consolidation could well stretch in November and any dips will be more likely be bought into.

The S&P BSE Sensex saw its worst fall in the year 2008 when the index fell by over 12 percent, followed by the year 2011 when it saw a decline of 7.7 percent, and just last year in 2016, the index fell by a little over 5 percent.

The index rose in 3 out of the last 10 years. It rose nearly 10 percent in the year 2009, followed by 4 percent rally in the year 2012 and 3 percent gain in 2014.

The Nifty50 touched a fresh record high of 10,384.50 earlier in the week and a sustained move above 10,385 could add fuel to the momentum, till then we could see some consolidation in the month of November.

Crude oil is not trading above $60/bbl since the last few days. But, analysts are not worried and say that even crude at higher levels can be interpreted as a bullish signal for equity markets across the globe.

“The Nifty50 is hitting fresh highs on a daily basis in October which suggests that market is in a structural bull run. The index could continue its northward journey as earnings season so far has not disappointed the market,” Saurabh S Jain, MD, SSJ Finance & Securities told Moneycontrol.

“History suggests that Crude and Markets can have a positive correlation and even Crude at $60 can be interpreted as a bullish sign, as seen in Feb 2016 when WTI Crude bottomed around $27 and Nifty bottomed around 6850 and subsequently both gained with a positive correlation,” he said.

Jain further added that even during the period from May 2015 to Feb 2016, both Crude and Nifty mimicked each other on the downside. Given the current liquidity in the markets, any correction is likely to be bought into very quickly. Hence, November could belong to bulls.

Technical Take on Nifty:

The markets might be staring at a critical resistance point placed at levels 10,400 to 10,600 on long-term charts, but the technical weakness is yet to materialise. Hence, it will be difficult to conclude that Nifty will be in the clutch of bears at this point in time.

The trend will favour the bears only if the index slips below 10,100 till then investors can hold on to their long positions with a trailing stop loss placed below 10,238 levels.

“Although markets might have corrected in the month of November on 70% of the time in the last 10 years, when we analyse the patterns prior to such correction then almost on many occasions a clear-cut technical weakness was visible whereas the current technical set up is entirely looking different as of now,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Indices made a robust move in the month of October after two months of the corrective consolidation phase. Besides, a strong breakout accompanied with a fresh buy signal on weekly MACD Chart is only suggesting buying opportunity on dips,” he said.

Mohammad further added that unless Nifty50 slips below 10100 levels the trend may not decisively change on the downside. “We expect more or less a sideways phase to continue in the month of November but not a steep cut,” he said.