Beware, 2019 is coming!!!

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.

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.