We are almost at last week of
2018. That was a challenging year for stock markets worldwide. Sudden jump in
volatility in last 4 months and wild swings created holes in the investors' and
traders' pockets.
As usual, fund managers and experts are telling to restrain panic.
We, common people, tend to forget that they have to spread optimism for their
business sustainability. But the way things unfolded recently could lead to
major catastrophe.
Dow Jones Industrial Average, the mother of all indices is in poor
shape. It closed almost 10% below 200 EMA on 21.12.18, which could be termed as
official bear market. Dow Jones generated a negative return of 9% in 2018.
Economists fear of slow down or even recession in US economy. The
US yield curve is pointing towards that upcoming disaster. The curve is
flattening and also got inverted in some brief periods.
If USA enters in recession, there could be panic across the globe
and India would be no exception.
Back home, Indian stock market is in much better shape. Nifty is
still slightly above 200 EMA. A positive yearly return of 2% could make the bulls relieved. But in dollar terms, Nifty has posted 6.5% negative return
so far in 2018.
Relative strong performance of
Indian benchmark may cause severe problem since it has more room for
downside. After all, Nifty is currently trading at 26 P/E. Historically
this is extremely high valuation and thus unsustainable.
In this backdrop we are
entering 2019, the year of election, the year of uncertainty. Anything could
happen though we believe, Nifty has more downside than upside in at least first
two quarters of coming year.
This is our opinion, one need
not agree with this. Lot of people is quite optimistic. They could prove right
also. After all, stock market is uncertain and difference of opinion is the
sole driving force of it.
Let’s look at the technical picture.
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| Decisive break below 10000 may lead to disaster |
A classical Head and Shoulder pattern seems to
be forming in Nifty weekly chart. Neckline is at 10000. As per theory, this
reliable bearish reversal pattern is never completed until neckline is broken.
Real panic may start if Nifty decisively breaks and closes below
10000 on weekly basis. Minimum price objective in that case could be, if we
dare to say, around 8300.
The level of 8300 is quite reasonable and that coincides
with 20 P/E. The level which many value investors find reasonable.
Disclaimer - The views here expressed and the charts shared are strictly for educational purpose and not guideline for buy or sell. The author will not be responsible for any loss, that may occur.
