Nifty Medium Term Outlook: Feb 2019

Nifty Outlook: I have never posted my medium/long term outlook on the blog and since many have been asking me for my medium/long term view, let me post it now. I am posting my view/wave counts from Jan 2017 ( low of 8K) as wave count prior to that assume very little significance as of now (from 6-12 months perspective).

Now most analyst and chartist are reading the recent development as a potential H&S pattern in the making. We are not saying that they are wrong but we don't fully concur. Main reason is the strong rise from all the way to 8k levels to 11k levels ( tail of left shoulder). As per our analysis and view its too long and strong. Secondly the congestion we are witnessing at 10900 levels ( supposedly right shoulder) is not very symptomatic of a H&S pattern or right shoulder. Now it may still be a right shoulder (in which case market should not cross 11177 levels and should turn sharply from these levels).



Nifty- H&S in making?

Now as per our view, we feel Nifty is either making a -

a) 7 legged diametric pattern ( ABCDEFG) : Count mentioned in Blue 
                                                 or
b) 5 legged Extracting triangle: Count mentioned in red



Nifty Diametric or Extracting Triangle

Now the only difference is if its a) 7 legged diametric pattern then its already completed at 11750 last year in Sep and if its b) Extracting triangle in progress then its still ongoing but must terminate below 11750 levels. So upside is capped in both the cases. Lets see how these pattern can impact markets. For short term both have same impact so it doesn't matter which one it is, the near term direction remains same.

7 legged diametric pattern ( ABCDEFG): If its a Diametric pattern then we already have a pattern completion at 11750 and the fall from 11750 to 10k levels In Sep-Oct last year was 'A' leg of next corrective and the rise we have seen from 10k levels is B leg which is still in making ( now this B leg in itelf is developing as another diametric pattern which I have been mentioning in my daily posts). The thing is the fall from 11750 to 10k in Sep oct last year though was sharp, it wasn't probably an impulsive move and was a corrective move only. If its true then B leg can test 78.8% of entire fall which means levels of 11400+ in Nifty. Now if  the A leg ( 11750-10K) was an impulsive move then market should not retrace more than 61.8% level of the entire fall which gives us levels of 11150. So if our diametric assumptions is true then we have 2 critical levels to watch out for 11150 and 11400 ( only chance that Nifty can go above 11750 is if this correction is developing as an 'irregular' or 'expanded flat' but looking at charts it doesn't look like so but still its a possibility even though a little one).Now Its possible that Nifty reverses from here itself ( 11150/11400 is the cap, its not the minimum requirement). If this is the scenario playing out then we might see sub 10K levels again soon but the fall wont be in one single line and it will not be easy to trade and once its complete expect a sharp move on the upside again which can go as high as 15K ( mimic the original 'A' leg of the diametric)

5 legged Extracting triangle: Now lets assume the pattern is developing as an extracting triangle. We can clearly see that falls are getting bigger and rallies are getting smaller which tells us the last point till which the current rally ( or E leg of extracting triangle) can go is 11700. If it happens then we will have a double top type scenario at 11700 levels and the next pattern will start only once E leg is complete. Problem is E leg has a big range and it can terminate anywhere from 11k to 11700 levels however it should terminate within next 4-8 weeks from now. Once Extracting triangle is completed the trend should start downward and though it wont be fast it wont be slow either (will be more impulsive than diametric) and even has the capacity to retrace 100% of its rise (which means testing sub 8k levels in Nifty).

So whichever way you look, currently there is a possibility for Nifty to move up a little bit from here and from there we should start a new leg down which could take us below 10k ( 9300-9900 if its a Diametric pattern) or all the way down to 8k levels ( if its a extracting triangle).However one should not focus on such long term targets as from trading perspective they don't matter. What matter is what Nifty is going to do in next 2-4 weeks but still its important that your long term direction is clear so that when actual move starts you are not taken by surprise.

Coming to fundamentals, I believe markets are super expensive presently and PE ratio is hovering around 26-27 ( it went as high as 28 which is similar to what we saw in Jan 2008). However a high PE ratio doesn't mean that markets will fall. If earning improves then PE will fall in line too but still its definitely not the right time to invest so will not suggest anyone to invest in stocks at current levels ( not even through SIP or mutual funds atleast till earning start improving and Nifty PE ratio fall below 20). That way your investment will be much safer from a medium term perspective. If one is a swing trader then all the times are right for trading and it doesn't matter in which direction Nifty moves, you can still make money. However for an investor the right timing matters a lot.