SEBI's new norm & its impact expected on Nifty 50

Hello Readers,

Nifty has posted a bearish engulfing. This coincides with the big announcement by SEBI to establish minimum investment requirements in each market cap category- large-cap, mid-cap and small-cap. This decision, while disruptive of the natural market forces of demand and supply is a gift for the small-cap investors. You might have noticed several small-cap indices have given a marvellous run-up today, refer to the snapshot below-

This is however not good for Nifty50 as it comprises of the largest 50 stocks in the market. 

Now, if you have Rs.10000 (100%), in the following denominations:

Rs. 2500 in a promise coupon from your Mother that she will pay you this money on so-and-so date (debt) (25%)

Rs. 6000 in 6 notes of 1000 denomination notes (large caps) (60%)

Rs. 1000 in 10 notes of Rs. 100 (mid cap) (10%)

Rs. 500 in 100 coins of Rs.5 (5%)

But SEBI is now asking you to hold this same Rs. 10000 in such a way that you have at least 25% each of large-cap, mid-cap and small-cap. 

So now, you will have to ensure that you have 

1) At least Rs. 2500 in Rs. 5 denominations, that is 5 times of Rs. 500. That's a minimum 5x rally in the small caps

2) At least Rs. 2500 in Rs. 100 denominations, up from Rs. 1000, that is a 1.5x rally. 

So this means you have 50% already allocated to mid and small caps. Now initially you were holding 60% portfolio in large caps. 60+50=110- not a realistic scenario. So you will have to unload your Large caps to accommodate the mid and small caps.  

This, when applied to the stock market, will mean a boo-boo for Nifty 50. The large-cap index is already displaying three undeniable signs of weakness as elaborated in the analysis below.

  

This move by SEBI will prove to be a big promoter for the Indian economy in general and I believe is very much in line with the Central Government's mandate of promoting small businesses as observed in the budget 2020. 

Please leave your thoughts in the comment section below. This will help me improve my content. 

Thanks for reading :)

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Nifty 50 Analysis: Drawing a plan of action

Dear Readers,

With the festive season behind us and the elections ahead, the market is in a lull state. Many are talking about 'action' coming back as elections draw closer and given that, it is only prudent to have a plan of action ready.

I have presented the hourly chart of Nifty50 below for analysis, but before we begin I would like to draw your attention to the indicator I have primarily used for this analysis.

Over the past few months, I have figured a new moving average about which you will not have heard anywhere else. This exponential moving average is exceptionally long, but works beautifully on daily and hourly and even shorter time frame charts. The 600 EMA is 3x longer and 3x smoother than our favorite 200 EMA, and if you listen to me, this will soon be your 3x favourite too. You can use the 600EMA label to search my blog for other posts mentioning this magical moving average and deciding the effectiveness of this underrated moving average for yourself. 

Coming to Nifty now. In the chart attached below, the red arrows are clearly marking the resistance which the 600EMA  has posed for Nifty on every rally. The one instance when the 600 EMA was breached was apparently an instance of a fake breakout. The ascending triangle visible on the chart is capped by 600EMA and upward trendline is providing it support. This is a classic ascending triangle. Now this is a continuation pattern. 

The market as I see it now is quite weak. The first support has been touched. A sustained breach of 10770 on closing basis would take the index to 10540 and also mean failure of the pattern which will lay the ground for deeper correction. I am betting on the failure. 

However, if the pattern succeeds, then on the event of a strong upmove above the 10870 level , with a closing on the daily chart , a proper throw back and subsequent continuation should take Nifty up to 11750 again. 

Nifty Hourly chart, captured on 10-01-2019

That is from my side on Nifty. Please do share your outlook on the index and the general direction of the market. I have been bearish since 11700 level. I was bearish at 10600 also and I will continue to be bearish till nifty does not break the 10000 level!

Disclaimer: I am holding a Nifty JAN 10300 Put. 

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Nifty 50 Analysis: The Doji is here, and its bear-ly a good news

Hello Readers!

Please find the analysis of Nifty in the images below!

Nifty 50 formed a Doji pattern right at the 50% Fibonacci retracement level today. Could this be the end of Wave B?

Note: Wave B catches people in the wrong direction. It performs the task of enticing the suckers to jump into the market. This is where bear or bull traps happen. As a general rule, B Waves tend to show lower volume.

Analysis: I believe Nifty 50 is showing the same traits of “eager participants jumping in at small rallies”. A failure to close above 10900 will ensure correction and beginning of Wave C. However, even if it does, the 61.8% golden ratio resistance level stands waiting at 11,100 which is a very strong resistance level and crossing that probably call for a new high in the index, which given the market climate seems far-fetched. 

Chart 1: Nifty (Daily) as on 30th Nov, 2018

There is eerie precision in today’s closing price which exactly coincides with the 50% retracement of Wave A

The above is a 30-mins chart. Today’s price movement shows uncertainty among the participants. Though the index opened strong, it continued to fell throughout the day and only closed slightly position thereby forming the doji we saw above.  The RSI had dipped below the level of 60 today for a while. As many may point out, it indeed is a bit pre-mature to conclusively point out that the rally is over for once but considering that oil prices are expected to bounce back owing to the cut in oil production, I think it is fair to look for evidences of weakness in the index too. 

Chart 2: Nifty (30-mins) as on 30th Nov, 2018

If Nifty 50 turns lower from this level, or even from 11100 which is the 61.8% retracement of the initial fall, more pain could follow in the unfolding of Wave C

Chart 3: Nifty (Daily) as on 30th Nov, 2018

That's all for the day! Stay tuned to my blog for more research on stocks, indices and commodities as and when I spot an opportunity worth writing about!

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