As Calendar 2019 ended, we noticed the market finish close to the excessive level of the yr. Regardless of a unfavourable ending on the final buying and selling session of the yr, Nifty50 ended the yr with robust beneficial properties of 11.53 per cent on a yearly foundation.
That mentioned, the yr has left us with a lot to learn on the long-term charts and provided many cues that counsel the yr 2020 might grow to be certainly one of capped beneficial properties.
The above is the long-term 20-year month-to-month chart of the Nifty50 index. As evident, because the starting of 2018 and all via 2019, the index marked incremental highs. Nonetheless, these highs on the frontline index have include a continued bearish divergence on the RSI. The bearish divergence has occurred as Nifty marked increased ranges, whereas the RSI didn’t stay in sync and made decrease tops as a substitute. This sample is but to be resolved.
Moreover, regardless of the 11.53% of acquire in Nifty, this acquire has remained restricted to contributions from simply 5 shares: Reliance, ICICI Financial institution, HDFC, HDFC Financial institution and Kotak Financial institution, which added over 85% of the whole beneficial properties.
One other very important factor to notice from a technical perspective is that there was much less and fewer of contribution from the broader market in final two years, even because the frontline index gained.
Nifty500 represents the broader market, which represents over 95% of the whole free-float market cap. As seen within the above chart, when it hit its excessive, the rise available in the market was secular. The secular participation was mirrored via the RS Line, which compares the efficiency of Nifty500 index in opposition to that of Nifty50.
The rising nature of this line till 2018 reveals the broader market carried out much better than Nifty50 and the beneficial properties have been secular in nature. Nonetheless, because the starting of 2018 and thru all the 2019, at any time when Nifty500 revisited its peak, the RS Line, which compares the 2 indices, has continued to see a secular decline. This indicated lesser and lesser participation of the broader market, whilst solely Nifty50 gained, that too, due to beneficial properties in simply 5 shares.
Even throughout 2019, whereas Nifty50 gained 11.53 per cent, the Midcap Index misplaced four.42 per cent and the Smallcap index 9.91 per cent.
Niftys month-to-month charts continued to indicate a bearish divergence and this sample just isn’t but resolved. Additionally, the incidence of a Spinning High on the candles pointed to the doubtless exhaustion of the up-move. What made issues worse was that the broader market breadth remained dismal, and thats why the absence of participation within the up-move of the broader market will grow to be a explanation for concern going forward.
Within the present technical setup, Nifty must resolve the unfavourable divergence in opposition to the lead indicators. Together with this, if the broader market fails to carry out, it won’t be shocking the upside stays capped for Nifty all via 2020.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founding father of Gemstone Fairness Analysis & Advisory Companies, Vadodara. He could be reached at firstname.lastname@example.org)