Markets may continue to remain volatile and weak as hardly 5 trading sessions are left ahead of the exit poll which is scheduled for 19th of May.
Judgment Day for the market is fast approaching following a marathon poll battle, spread over 45 days in 7 phases. The 2019 general election has been dubbed the largest democratic festival in the world.
As the fate of the next government is being sealed within electronic voting machines (EVMs), the pulse of investors is rapidly accelerating with each passing day as the poll outcome is bound to have its own impact on the market.
It appears that event-based punters are heavily invested in Indian bourses, hence a wild swing can't be ruled out going forward on counting day, which will be held on May 23.
It is widely believed by market fraternity that short-term trends get influenced by near-term events whereas long-term trends in the market remain intact.
Hence, it seems worthwhile to focus on how long-term trends are shaping up after a prolonged corrective and consolidation phase since January 2018, when markets were bruised and battered across the globe.
Indian markets which were reeling under pressure with a cut of 15 percent from the highs of 11760, registered in August 2018, slipped into a sideways range between 10985 – 10333 for three months.
It registered an absolute low of 10,004 recorded in October 2018 only to breakout above the consolidation range to register a new lifetime high once again around 11,856 levels.
Interestingly, none of the important global markets registered a new life high except S&P 500 among developed markets like DAX, CAC, FTSE and from emerging market space only Brazilian Bovespa hit a new life high along with Indian bourses.
Interestingly, the month of April delivered better returns for global markets, unlike March in which Indian markets remained active but witnessed a mediocre gain in the month of April.
Sudden spurt from the lows of 10,817 in March with a gain of 10 percent can be a tactical shift of investors forecasting a strong and market-friendly government at the centre especially after the Pulwama incident.
But, as the D-day is nearing, nervousness about electoral outcome apart from global jitters appears to have resulted in a 5 percent correction from recent highs of 11856 levels.
When we study the longer term trends the recent rally appears to be a fresh leg of upmove from the lows of 10585 levels after a prolonged consolidation of around 3 months which should ideally have more legs on the upside going forward.
However, post electoral outcome, Nifty need to sustain above 10,939 levels to confirm that it has embarked on a fresh leg of multi-quarter bull run inside a long term bull market.
In such a scenario Nifty need to register a fresh breakout on long-term charts above its critical resistance zone of 12000 – 12100 which will confirm that long term bull run resumed with targets placed between 13500 – 14000 levels.
In case if this critical level of 10939 is violated then we will go for relabeling of our wave counts and consider the rally from the lows of 10585 registered in February 2019 as a part of a protracted corrective structure which is in progress from January or September 2018.
At this juncture, the main question to address is that if this is a corrective rally then to what extent the market can go down on resumption of downtrend post-election outcome.
Then based on our historical observations and the study of long term trends it seems that major supports are available in the zone of 10500 – 10200 levels on the long term charts where we expect the correction to end in the worst case scenario after the election.
Short term picture:
In the coming week, markets may continue to remain volatile and weak as hardly 5 trading sessions are left ahead of the exit poll which is scheduled for 19th of May.
Hence, some sort of profit booking and nervousness on the part of market participants can be justified. At this juncture, traders are advised to focus more on risk management rather than short term levels as they are bound to get whipsawed ahead of the event.
Even HNIs are advised to reduce their leveraged bets to their comfort points whereas small investors and retailers should completely F&O segment for time being.
Purely based on charts markets may come under pressure on a close below 11,229 level and head to test its 200-days moving average placed near to 11,000 levels.
Investment themes:
In that sense, the market is in a corrective phase for the last 15 months. Even if we presume a weak coalition occupies the power even in that situation correction, based on our analysis, shall not last more than 6 months with a worst case target placed between 10500 – 10200 kind of levels.
Already small and midcap stocks are completely bruised and battered but some of them are still delivering better profits and trading at single-digit earnings multiples. This can be an area of opportunity to invest for a longer term.
Similarly, investors are advised to focus on some of the largecap auto counters which are already under pressure and can become attractive buys in case market corrects sharply owing to election-related volatility.
Similarly, the merger of PSU banks appears to be gaining traction. Investors can eye top 5 PSU banks for investment purpose.
(The author is Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in)
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