Clear path for bulls now, but resistance ahead

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Clear path for bulls now, but resistance ahead

Clear path for bulls now, market to rally, nifty to touch 11000 this week, 30 stades,

The consensus estimates for the US labour market in May had suggested that the world’s largest economy would shed 7.5 million jobs. But the data released on June 4 revealed that 2.5 million jobs were added during the month! On a base of total labour force of 150.8 million, this discrepancy turns out to be over six per cent of the entire working population of the US.

How can things be so out of line? Then, maybe, it’s a sign of the times we are in.

Times that saw the Federal Reserve’s Balance Sheet expand by over $3 trillion between Februaryand June 2020.

For the record, it had taken a full century – from 1913 to 2013 – and the Great Financial Crisis of 2008 for the Fed’s Balance Sheet to reach the $3 trillion mark for the first time.

One gone, two to go  

With money supply increasing at a pace never seen before, and policymakers around the world abandoning free markets in favour of an optically healthy looking one, there seems to have started another FOMO (fear of missing out) race in stocks. And while India stayed out of this for almost a month, we sure are catching up.

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Last week, the benchmark Nifty gained a little under six per cent following a similar move in the previous week. With this, the 50 percent retracement of the entire drop in February-March – 9970 – has clearly been taken out. What remains to watch are the 61.8 percent retracement level at 10551 and the 200-Day Exponential Moving Average (DEMA), currently at 10580.

While it just seems to be a matter of a couple of days before these levels are tested and even conquered, what’s interesting is that this pullback and the Nifty’s tryst with the 200 DEMA reveals the nature of this bear market. Firstly, the Nifty had dropped so much so fast that even a retest of the 200 DEMA will require a 40 percent move from the bottom.

A conquer of the 200 DEMA by bulls is par for course in a bear market. It happens almost always.

For example, in 2008, after the initial drop of about 30 per cent in January, the Nifty rallied almost 20 per cent and stayed above its 200 DEMA for several days in April and May before the eventual collapse in September and October. So, for the Nifty to now conquer the 10550 levels and even push around 11000 is pretty normal. It doesn’t mean the bear market is over. It just means bears need some more patience.

Clear path for bulls now, market to rally, nifty to touch 11000 this week, 30 stades,

Secondly, given the fact that the Nifty is still almost 20 per cent below its all-time high at a time when the Nasdaq 100 is at a fresh all time high and the S&P 500 is almost there, just what will it take for it to go back to its own highs? Doesn’t it feel more like the Nifty is being dragged unwittingly along with the US indices and when the latter corrects, we will struggle to hide? It sure does to yours truly.

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Stranger things

Bulls earn over a period of time. Bears earn in spurts.

This is a given. So, for a bull, the next 500 points in the Nifty are there for the taking. The challenges will begin around 10600. If even that’s taken out and there’s a serious dash towards 11000, they will encounter a mountain of oversupply. And that’s the opportunity for bears.

As for what happens in between, well, it’s probably time to sit back and watch the fun. For, even shares of Idea-Vodafone have quadrupled from their March lows; shares of Hertz – an American car rental company that had filed for bankruptcy last month – are up 800 per cent and Donald Trump is ridiculing ace investor Warren Buffet for selling his airlines' stocks!

(Lead Illustration by Shefali Saxena)

(The writer, T-Rex, is not a dinosaur. He is a technical analyst from the previous century.)

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of 30 Stades.

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