Fresh bull phase or signs of bearishness?

Fresh bull phase or signs of bearishness?

A quick synopsis of key events which have occurred during last 5 months summarised not necessarily in the chronological order or order of importance:

Interest Rates and QE

ECB sets the rate on deposits to -0.50% and announces QE starting this month (November 2019)

Fed reduces interest rates by a quarter percentage point and announces a pause on rate reduction in the near term.

Geo-political tensions and disruption in the global oil supplies

A variety of geo-political events happened related to Saudi Arabia, Turkey, Kurds, Syria and Iran and consequent tensions may continue in the future.

There was a drone attack on the oil facilities of Saudi Aramco which disrupted a significant percentage of global supplies but the supplies were restored in a short span of time.

North Korea resumed conducting its ballistic missile tests.

Tweets, Trade War, Tariffs

Premiers of two large economies of the world got engaged in an exchange of tweets leading to a high volatility in the global financial markets. Twitter should be grateful to these premiers for using its platform that drew lot of fan following of these Premiers.

Series of tweets and continuing trade war by way of tariffs and consequent attempt to reach an agreement by the premiers of these countries is akin to seamless streaming of the movie ‘Now You See Him Now You Don’t’ or Mr. India, the desi version, leading global financial markets on the edge.

Inverted Yields

The yields on American bonds got inverted.

Brexit

Brexit has so far seen exit of two British Prime Ministers instead of exit of Britain out of Euro Zone. The third Prime Minister attempting Brexit has adopted some unconventional means for the legislation of Brexit to go through, including holding fresh elections in December in the hope of garnering more votes for the passage of bill and meanwhile the Brexit date has been extended by the EU to January 31, 2020 upon request of the British PM.

Considering that the global indices and stock markets remained unfazed by all the above global uncertainties and moved unidirectional in the overbought zone, despite minor hiccups, it is becoming increasingly difficult to ascertain as to what factors could keep the indices scaling higher or what factors could be the possible trigger/s for the bearishness of the global stock markets in the wake of bearish signs getting developed on charts, besides visible signs of global slowdown in jobs, economic, housing and GDP data.

Since the markets are continuing to scale fresh highs or are being extremely close to the recently made highs in the preceding two quarters, many financial pundits, business channel editors and anchors advocating the ‘Buy on dips’ mantra, Chairpersons/ Managing Directors of large banks/ Housing Finance companies, big bull investors and many others have started predicting the emergence of a fresh bull phase.

However in light of the following charts, this unanimous optimism, remains a matter of discomfort:

Both Dow Jones and Nifty have formed two ‘Hanging Man’ candlestick patterns on quarterly charts (bearish signs). The third quarterly chart which is under completion (will get completed by December end) on both the indices is also in the form of a hanging man (please see the quarterly candlestick charts of both Dow as well as Nifty elsewhere in this post below).

Nifty

While September Quarter hanging man has given bearish confirmation (the dark real body of the September quarter  candle covers the white real body of the preceding quarterly candle, i.e., June Quarter hanging man), the current quarter (December quarter – under completion) candle is also so far in the form of a white hanging man.

However in this case there are two observations. The index (Nifty) has not been able to cross highs of previous quarter despite announcement of a slew of stimulus measures and there are close to a little short of two months left for the quarterly candle to be complete before a conclusion can be drawn.

Meanwhile, Moody’s has downgraded India’s rating from “Stable” to “Negative.”

A day prior to the announcement of rating downgrade, Nifty formed a hanging man on the daily candlestick charts and it was followed by a drop in the index after announcement.

On weekly candlestick charts, Nifty has formed a shooting star candlestick/ doji.

Dow

In case of Dow, the three quarterly hanging man candles (third one under completion), have scaled new highs one after another.

On the last occasion, there is a formation of a hanging man on daily candlestick charts as was formed on Nifty in the second last trading session.

Excitement in the local stock markets

On home turf, a slew of measures providing intermediate and long-term financial stimulus to the economy were announced by the Finance Minister on two different occasions by way of review/ roll back of 2019-20 Central Budget provisions and Income Tax rate cuts, bringing India at par with its South East Asian peers, with the intent of attracting and inviting long term foreign capital. Combined cost of these two stimulus measures is close to or exceeds Rs.2 trillion.

With the foregoing commentary, I leave the readers to conclude for themselves the direction that the markets are going to take.

Best wishes for the festive season.

For more charts the author can be contacted at: riskadvisory@outlook.com.

DISCLAIMER:

These extracts from my trading worksheets/books are for the purpose of education only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as an advice to buy, hold and sell or otherwise deal/ trade in commodities, currencies, indices, securities or other forms of investments. Accordingly, no reader should act on the basis of any information contained therein without consulting a suitably qualified financial advisor in the first place.