Markets have been going up recently in spite of increase in coronavirus cases and poor performance of companies. So, It got me wondering what was really driving the markets. Was it speculative up move or was it supported by real cash inflow.
Now I am presenting three reasons as to why I think market may fall in coming days with a proper rationale.
1) Volumes:
As you can see volumes are in decreasing trend and infact below the 20 day moving average (black line) and price has been going up, which is not a good signal.
Theoretically, increase/decrease in the price without volumes cannot be sustained. Market will reverse and comeback to its original level from where the speculative move has started.
Lets look at nifty:
At point 1, during March nifty went up and eventually came down as it was not supported by any substantial volumes. Same can be observed at point 2. Also, to give an example of up move with strong volumes, let’s take a look at point 3. Here nifty shot up supported by volumes eventually sustained at higher levels.
Further to verify the weak volumes, I plotted a graph for traded value data (in INR Cr).
From 25th june turnover has been decreasing.
2) P/E ratio:
Nifty’s current PE ratio is 27.78. Historically whenever nifty’s pe ratio was around 28, strong downfall was seen in nifty.
3) FII data:
Also if anybody trades on weekly view basis, they keep a close watch on the FII data. FII’s are Foreign institutional investors who bring money into our markets and have the capacity to move our markets.
They have been constantly selling equity since June 25th and were net buyers only on 3rd July.
Date | Net purchase/sales |
25-Jun-2020 | -1,050.61 |
26-Jun-2020 | -753.18 |
29-Jun-2020 | -1,937.06 |
30-Jun-2020 | -2,000.08 |
01-Jul-2020 | -1,696.45 |
02-Jul-2020 | -556.72 |
03-Jul-2020 | 857.29 |
Fundamentals:
Fundamentally nothing has changed in the recent months. No of covid cases are increasing daily, Most of the companies are posting their poor quarterly results and some are intelligently postponing their results. Majority of small companies are trying to stay afloat and survive this pandemic. And on top of that there is escalation of India-China border tensions, but markets kept on making higher highs.
In a nutshell we are simply mirroring American markets. And trump & Fed are trying their level best to keep the markets at higher levels. Whenever there is a small dip in markets you can see a tweet from trump regarding positivity in some sector or some good employment numbers. He always keep talking during market hours. But for how long can he or Fed keep saving the market.
View: Market can correct in coming days, but key question is When? But when it does are you ready to take a piece of it? (short sellers)
Disclaimer
Please note that all the recommendations/views/ levels we provide are based on the theory of technical/fundamental analysis and personal observations. This does not claim for sure/ certain profit or any fix returns. we are not be liable for any losses you make on the given takes and levels. You are advised to take your position with your sense, discretion and judgment. only you would be responsible for outcomes of your trades
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