A longer-term view of the Markets
The Script - of the markets - has not gone according to plan, and the script for the general elections also seems to be hitting a snag. Let me be honest: I don’t trust (m)any journalists and their opinions on the elections, and of course, people like us don’t have the skills or the time to evaluate the elections.
True objective analysis, of which way the electoral wind is blowing, is incredibly hard and almost impossible to find. In that regard, the one person who has always made sense to me is Yogendra Yadav. He has his preferences but also can put them aside when evaluating an election. I have added an interesting interview with him at the end of this post.
Now, I started this post by saying the script hasn’t panned out, and the reason for that is that with 20 - 21 trading days to go before election results, the markets have now consolidated for all of CY 2024. This is historic and unprecedented.
The five months before the election results have never ALL consolidated i.e., there is at least one or more fairly large red or green candle. This has not happened so far (and I will not try to predict May in the middle of such information asymmetry). Just look at the chart below.
Sensex with election months highlighted
Consolidation on the NIFY
The Pitchfork
I have not seen a pitchfork this consequential in a very long time.
The NIFTY hit the middle line of the PF in Mid-January and since then it has consolidated in a slow upside grind between that middle line and the 10-week
Simple Moving Average (WSMA) (in some cases the 20WSMA). Refer the highlighted portions of the chart below
If this data piques your interest, then the following will blow your mind:
2024 will have completed 22 weeks before the election results come out on 4th June. In Order to get an idea about ranges, I look at the rolling ranges [i.e. the range of the past ‘N’ weeks just like we look at the moving averages].
The All-time record low range for any 22-week period in NIFTY History is 7.77% (ending in November 2023). Of the 1400 such instances, only 21 had a range of < 10%, i.e., 98.5% of the time, the NIFTY has formed a 22-weel range of > 10%.
The current range for CY 2024 is 7.63% i.e. Even if NIFTY expands the current 2024 range (21137 - 22794) by 500 points it will *STILL* be less than any 22-week range for the NIFTY 98.5% of the time.
Why does this data matter? Once this contraction ends, the NIFTY sees a dramatic range expansion and a one-sided move [Let us say the NIFTY is teeing up a potential significant double-digit move]
Custom Indicators
As you know, I use multiple custom indicators to track the NIFTY. The one common pattern across all the custom indicators (Weekly Time frame) is “DIVERGENCES”, i.e., as the NIFTY has moved higher, it has lost momentum, and the indicators have started reverting to mean. Their mean reversion has some distance to go, but they also don’t always fall in a straight line (except when they do). This means that IF there is any upmove now, that may very well be the last hurrah before a real significant correction kicks in.
The Broken Clock
The India VIX (IMO) is like a broken clock, correct only occasionally for various reasons.
The VIX is supposed to show volatility 30 days out, and we are exactly at that point. Over the past few days, the India VIX has been up ~50%. Why would it do so if the market was super confident of the Sarkar coming back?
Some more Data on the Weekly Time frame
The NIFTY has now made a weekly high or low within a +/-2% range around the 10 W-SMA for 16 consecutive weeks.
This is the 3rd longest streak across 26 years.
The longer streaks have been 18 weeks and 19 weeks, respectively.
The Longer Time-Frames: Points to Note
2 Week TF:
The NIFTY has now made Higher Highs on this time frame for 13 consecutive candles. This is the second-longest streak in history (the record is 18 candles).
The NIFTY has not touched the level of 40 on the standard RSI for 103 candles. The 2nd longest streak in history ended at 105 candles. The longest ended at 133 weeks in 2007.
The NIFTY has now spent 27 candles (54 weeks) above the 20 WSMA on this TF. This is not an extreme yet, but a high number nonetheless.
The Monthly TF
On the Bollinger Bands
The NIFTY has not tagged either the +2 or -2 SD on the 50 period Bollinger Band for 25 months now.
The top-3 such streaks since 2008 have been 34 months, 32 months and 26 months.
The NIFTY has not tagged the -2SD on the 20-period Bollinger Band for 50 months now. This is the second longest streak in history after 2008.
The 10 Month SMA has now been above the 20M SMA for 41 months and this is now the 2nd longest streak after 2008.
The different custom momentum quality indicators are all looking to make a divergent top i.e., the prices is significantly higher than when they made the last top but the indicators themselves are running into resistances.
The Quarterly TF
This bull-market has now tagged the +2SD for 15 consecutive quarters. The only longer streak - in history - was 20 consecutive quarters that ended in June 2008.
The NIFTY has now made a Higher-High for 5 consecutive quarters. The all-time record is 7 consecutive quarters.
The NIFTY has stayed above its 20 Quarter SM for 17 consecutive quarters now. The higher streaks are 21 quarters ending in 2008 and 32 quarters ending in 2020.
Summary of the Analysis
The NIFTY has now been in a near-record consolidation for 2024. This doesn’t happen in pre-election moves (The Sensex has never done so since 1984).
Caveat: There are still 20 trading days to go.
Across Momentum and trend-quality indicators, there are divergences galore.
On the longer term time-frames:
Two-week TF:
The momentum indicators are starting to show some divergences but are largely fine. This bull market is reaching a point where a significant
correction can happen but is not warranted (as per this TF).
Monthly TF and Quraterly TFs
This bull market is starting to show signs of age.
The simplest way to explain this in human terms is that if the bull market were a person, it would be somewhere around 60 - 65 years old when the life expectancy is 80 - 85 years.
One of the challenges of doing an analysis post so near to the results of the 2024 General Election is that the event is so binary and overwhelming. To top it all there is staggering information asymmetry because Wealthier market participants have the means to access real-time exit poll results and conduct these surveys.
Three levels of corrections/bear markets are most likely to occur over FY25 - FY27.
Corrections of > 10% and > 20% are almost overdue.
Then there is the one-in-a-decade crash that ends the bull market, and that one is probably anywhere between 24 and 48 months away.
Without the elections, I’d have said one final hurrah to the upside and then we get going with the 20% correction. With the election results due, the correction can happen without that major last hurrah, too.
Conclusion of the Analysis
Most Likely
We are at a point in time when the markets have not necessarily priced in the election results (either way).
Either way, I’d expect June and July to have a move that significantly blows out this range.
If the BJP wins a substantial victory, then I’d expect a relief rally of sorts, and if not, then a significant correction.
It is also possible the move starts in May itself because of the Information Asymmetry.
Direction—It is impossible to predict. Either direction is equally likely. The range to track will be the May Highs and the March - April lows.
This could very easily be a 2004 or 2006 or even 2009 redux (irrespective of the direction)
Least Likely
The NIFTY continues to consolidate even after the election results.
Worth Listening and Watching (Ignore the headline and Make your own judgements)
Analysis Success Rate Updated - 84% since September 2022.
Regarding my prediction score, I will score myself at 50% for March (Less likely worked out) and 0% for April (Least Likely scenario happened). This make my prediction success rate at 21 successful predictions out of 25 predictions since I started writing this analysis substack.
The analysis is meant to be foremost a journal of my analysis. Consider it as such and use it for your analysis. I’m not a SEBI-certified market analyst. I also post market analysis on threads at Seldon.Markets
https://www.threads.net/@seldon.markets
Thanks for sharing and keep sharing. Pl do next report latest by 2nd June 24