While doing
technical analysis there are times when price patterns are clear and call can
be taken with very high probability and there are times when there is complete
chaos in charts and nothing can be predicted. It had been an almost two years
and many futile attempts to predict the top of S&P500 and each time the
index has moved up after a sharp and short correction.
If we focus
our attention only on the price action, there is nothing which signifies market
top in near term. On the contrary S&P has broken above long term channel
convincingly and this indicates that S&P will move higher in next few
years. This also indicates that the frame I have been using for analyzing US
markets needs a complete change.
If we look
at the given chart we can see S&P had broken out of long term channel.
S&P had spent almost 14 years doing time and price correction. The breakout
of this channel indicates a target of 2100 for S&P500
The next chart is quarterly chart
of S&P500 index. Here we can see that S&P is moving in a channel and
the upper end of this channel is at around 1800. I think any meaningful
correction in S&P will only start once S&P reaches this level. I expect that S&P should move upto these
levels before this year ends that will call for a 30% YTD returns on S&P
and will qualify for a buying climax.
The next chart is a weekly chart
of S&P and it shows the same channel in detail. Once S&P reaches 1800
it can correct severely to the lower end of the channel i.e. up to 1450 levels.
If we look at the daily chart of
S&P500 we have strong support at 1655 and 1595 levels. Any long call on
S&P should be keep these levels as stop loss.
The last chart is that of Nifty.
Indian markets have also moved up on the back of three sectors; IT, FMCG and
Pharma. I expect Nifty to make a last push towards all time high of 6350
levels. I think that the current move in Indian markets will get over and we
will set in for a serious correction form those levels.
A typical bull market should have
a broad based rally where stock move up irrespective of their fundamentals. While
in the current rally, Nifty is being supported by a clever rejig of stocks
weights and changes in index. What we are
witnessing is a very narrow rally which is a signal of the last pockets of strength
in the market and they will also get exhausted at some point in time. The current
upmove in Nifty do not qualify as a bull run.
