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.
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.
