We are seeing a rousing end to 2023 and what could be better than the indices at the top at the end of the year! No doubt, we huffed and puffed a bit in between, what with a war or two, inflation, rate hikes, oil price rise, yield spikes. etc. But in and through it all, the market managed to sustain its uptrend and has pushed higher to these levels.
The reasons, by now, are known to many and the usual list of liquidity, India shining, U.S. economy stabilising, oil prices receding, lots of money yet to come in, and consistent SIPs--are all being touted for the rather relentless advance in the market.
At the same time, people also remain wary about the somewhat higher valuations, the overbought status of stocks, the possible froth developing in the small cap space, the frenzy in the SME segment and that is still, perhaps, holding some back. The rising market has continued to attract even more crowds into the options market and the activity there has gone through the roof. But none of these items of caution is impeding the rising trend. It is like the old cliché, everyone is uneasily watching the clock but no one quite wants to leave the party, because it is so much fun yet!
Is that painting a cautious picture for the days ahead? Certainly not. The last week's letter was titled 'A Hint Of A Discord' but the slight misgivings were completely swept aside as the indices pushed to new highs. Chart 1 shows the Nifty gains (daily) with a 1-bar Gann swing.
It can be noted that, from the swing low at Oct. 26, 2023, the Nifty has been in a comfortable uptrend with each swing low making a higher bottom. In the most recent period, we have two swing bottoms--in the region of 20,900-21,060 and active traders now have a very well defined stoploss area to protect their trades. Typically, prices may break one swing low back but seldom two of them. Hence, it is reasonably good bet that near-term pullbacks could halt around 21K for now.
The chart also shows some nice gaps and consolidation areas on the way up and these can for additional support zones if declines were to go deeper. All of these levels (marked as green zones) are value areas for buying dips in the market. So, it should be evident that the market is not going to turn bearish in a hurry.
But people always remain in fear of losing out their gained (or maybe regained) profits and hence are always willing to listen to some adverse stories. Maybe that is why these kind of stories also get credence and is a favorite forward among WA groups! Add to this the ultimate thrill of calling the market top! Now, that is a story that everyone loves to tell for a long, long time. I myself can recall how I would recount the calling of the 2008 top. But that meant nothing much because, the most I could do was sell out my holdings. It was difficult to short that market because no one quite knew why the markets were going down like they were. But an even bigger blunder was not spotting the turn that occurred from 2009 March. Compared to exiting your longs at the top of 2008, had one bought the bottoms of 2009, the sky was the limit! You can only sell what you have but if you can arrange the money, there is no limit to what you can buy!
So, I wanted to share that story with readers so that they don't get carried away with the desire to call the top and maybe exit their investments. The whole deal will be what you will do if the market declines to where you think it ought to! In a market like this, which is still rewarding buying the dips, planning exits on holdings doesn't seem to be very wise. It would be best, if we allow the market to take us out of it rather than we exercise our emotional status to do that. Simple tools like trendlines or swing low breaks ought to be enough to signal that. In addition, the momentum is showing divergence patterns and hence a break in trend would confirm the flagging momentum. Chart 2 shows the daily Nifty chart with RSI. It is also marked with a sentiment indicator.
It is interesting to note that the sentiment index is still positive, with a labelling of 'Hopeful' for the current trend--which means that the sentiment measure here is still positive and looking for gains. This will make for another buy-dip opportunity ahead. The daily RSI had reached 85 levels in mid-Dec and hence divergences here would be a normal occurrence. The weekly RSI, too, is at 75 levels but no divergence yet.
That now brings me to my expectations and projections for what could lie ahead for 2024.
Let's first deal with the most important even for 2024--the Lok Sabha election, usually around early May. Typically, one would be expecting some volatility or hesitation to creep in during that time. But I feel that the state election results of last month settled that issue--by removing the big fear that the BJP may suffer reversals. I feel the market has now got into a mindset that reversals may be there in pockets but not the kind feared earlier to the recent state elections. So, while I am not ruling out some hesitation around the poll, I am providing for only a small dip over there, which will form a higher bottom to earlier ones of the year. I expect market shall recover from any declines that the elections may throw up.
With that out of the way, let's deal with the rest of the year. First up, I expect that the end of the year will be far higher than the index high at the start of the year. So, the bull market of 2023 is all set to continue into 2024. Even if there is a dip around the election or thereafter, the market is likely to form a higher bottom and head to higher highs by end of the year.
There is a high chance that the low of the year may form early in the year- by end January or February and this may not be broken for the rest of the year. So the next correction will offer a very good chance for entering the market again. For this dip, I would think of a high to be made around mid-January and then for a reaction to prevail for a few weeks. Depending on the trigger for this reaction, the lows may spillover into early March as well.
Since we have been running along briskly, the January mid high could be around 22,120-350 area and we may start a reaction from there. I don't expect that to be a deep one, as the sentiment overhang is still very positive. So the lows could be in the region of 20,250-18,850. The latter is near the last swing low made in October 2023. If the map goes as per expectation, I don't expect 18,840 low (Oct 26, 2023) to be broken in 2024. Expect this level if the top end of the correction expectation (20,250) is broken.
Should we expect a pullback in May? The projection calls for one only if the monthly highs preceding May are lower compared to the highs made in January. As mentioned above, the max extent for that would be to around 18,850. If, on the contrary, the February-April highs tend to remain above the January 2024 highs, then the correction in May could be mild and contained.
But whether mild or strong, May will create a higher bottom to January lows and possibly, June-July could be consolidation months. Market should take off from there yet again to finish the year well. There can be an interim high in September which could be around 23,950 levels. If that gets exceeded then the ultimate target could be as high as 25,200 too. But for now, we can run with a target of 23,950 for 2024.
So, there you have it. Investing plans should be to remain invested in what you already have and to add to them in the first quarter of the year. Since the year should finish much better than its start, a policy of continuing to invest during dips should be followed.
There should be a lot of discussion in the public domain about sectors to be favored and those may be followed for choosing the vehicles. This will keep shifting through the year. But large caps may do well in the coming year is an expectation. The under performance of the large cap has now caught up with the mid- and small-cap indices and chances are that the large caps shall start out performing ahead.
I wish readers all the very best for the near year ahead.
CK Narayan is an expert in technical analysis, the founder of Growth Avenues, Chartadvise, and NeoTrader, and the chief investment officer of Plus Delta Portfolios.
The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
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