Nifty 50 Index: Continue With Longs

Last week letter was quite specific about the view. It was clearly bullish and I had recommended that the only way to go would be to remain long or even go long afresh. But acquiescing to sentiments held by people I had also stated that if one doesn’t wish to go long, then choose to stay away. Either way, there was no sell recommendations.

This would have come in handy as the market sped higher to record an all time new high by the end of week. Crossing 23,000, the market ended the week well and managed to repair sentiments towards the indices (which had been missing for a while). Also, the Bank Nifty too got pulled up and that index too is now on the verge of a breakout to the upside. I had mentioned last week too, that revival in Bank Nifty was a necessary requirement for Nifty to sustain higher. Therefore finding some action return to the BNF is certainly heartening.

On the charts we can note a clean breakout from a multi week range. This is most heartening as it finally signals the resolution of the consolidation that has been in progress for the past few months. That it is happening as the polling nears its end may be a signal that the market is betting on a comfortable BJP victory? The other point to be also noted is that new highs on the Nifty have been hit in the face of consistent FII selling! This raises the question of what can happen if the FIIs were to make a comeback?

Fundamental factors were at play in the last week as the oil prices cooled (despite Iran theatre not quite cooled down) and the whopping RBI dividend to the govt, helping ease its finances. The timing of these couldn’t be better- as the market was struggling to get out of the multi month consolidation. Economy faced stocks witnessed a surge and this managed to drag up the rest in its wake as well. The breadth was a joy to behold as almost every sector index (barring just a couple) pushed to all time new highs.

This is a vindication of the positive stance that I have been advocating all through. Those that are scared of the heights that the market has achieved or wish to play ‘safe’ with the June 4 results, should pause to check out the all the sector indices of the two exchanges, Even laggards like Pvt banks, IT and FMCG showed some rallies while the rest hit new highs. When the entire market participates in a push of the main indices to all time highs, it is a clear indication that there is no immediate fear of a top.

It also vindicates the stance taken a couple of weeks ago, when, using time cycles, I had commented that the middle of the month dip should be bought for a top finish by month end. From a low at 21,900 to last week high near 23100 is quite a good move that should have been capitalised.

There are many in this market who recommend that market should not be timed because it is "not possible." Consistent readers of this column, I am sure, would not agree with that view. Using simple technical analysis methods, added with some WD Gann technics along with a good mix of pure common sense, has allowed us to ‘time’ this market over and over!

Another week is left before we get into the election results mood. I would expect the situation to remain similar. There will still be many who harbour fear of heights and shall choose to stay away. There will still be many who will now argues that the risks for shorting at this levels is “not high” in their opinion. Never mind the fact that they thought this way when the Nifty was at 20000 levels too! There will still be many who would want to continue to ‘play safe’ and book profits. With the surge of last week- and perhaps more to come in the week ahead- they will have even more profits to book, perhaps!! These are the people who would rather go with their gut and feel than with facts and reality. Unfortunately, gut and feel has never ever been good trading/investing strategies.

My sense is that this market is not priced in for a positive surprise- like in 2014. I see it this way- we all have made a decent amount of money over the last several months and hence there is danger of losing money. So, why should we run scared of any talk of a BJP loss? Even their worst critic (barring the rhetoric) don’t expect them to lose. The 400-par is all election rhetoric as well- Modi himself admitted to that in his last week interview!  They need 272 to form a govt, that’s all. I think they should get that rather easily.

Now, if you come to the positive side, what if they manage to get much more than last time? I repeat, this market is NOT priced in for a big positive outcome for the NDA- so, why not play for that? Your payoff’s can be a lot bigger. Since we all have (presumably) the cushion of having made some money, the risk is a lot lesser than missing out on a humdinger upward?Think about that, folks.

With the Nifty hitting new highs, new price targets can be drawn up. 23400-23700 is what can be looked at, in case the market continues higher. Bank Nifty could vault towards 52500-52900 levels as it would get released from confines.

The financials should be in play in the next week, I would expect. Metals have flared up but may find difficult to sustain the tempo. Autos are in good clip and can continue. Adani majors have managed to reach back to pre Hindenburg levels (almost). A Modi victory can bring focus back on to the group.

Market has done nothing to change the conclusion from the last week- Stay long or Stay away. But don't short or sell.