jai bala: Next round of downtrend may have begun; India to slightly underperform world markets: Jai Bala

“This is a phase where India is going to slightly underperform the world markets. The structure for the US markets is that the correction looks incomplete, but the pullback can come close to the May lows for the US equity markets but may not break it. During that time Indian markets might underperform and break the March lows, which it has been protecting for some time, says Jai BalaChief Market Technician, Cashthechaos.com



What do you make of the extreme bearishness in terms of correction that you are seeing in the markets right now for India?
There are multiple options for the market’s bounce, but it was just a relief rally in anticipation. The market seems to be taking a bounce from a lower level. I would have preferred the market to bounce a little bit higher but the fact that the market did not go above 16,825 opens the possibility that the next leg of the downtrend has begun. If we see a close below 16,400 it increases the odds that the downtrend has resumed even higher. I would have preferred the market to go a little higher somewhere close to 17,000 but the fact that the market did not cross 16,825, it is driving a very important message.

The broader markets continue to bleed badly in comparison to the largecap space. What is your outlook in the midcap and the smallcap space?

The midcaps and small caps are going to be at the receiving end of the markets. Largecaps will start going down because they are high beta, and they have unfinished downsides from a market structure point of view. The support at 8,400 is not strong, somewhere closer to 8,200 is a stronger support. So though the downside from the low is not too much, from where it is now at about 9,000 on the Nifty Smallcap, 8,200 is a sizable number of downsides. My projection is that the largecaps need to go below the March lows at least by one point. We need to see somewhere close to 15,600 on the largecap to complete a correction and that is short-term correction.

I need to lay emphasis that the medium-term objective over the largecap index is about 14,000. When that happens, the midcap and the smallcap would not be spared as I have been maintaining cash for quite some time. Now it makes a lot of sense to get the bargain floor hunting once the market comes to those lows.

What is the sense that you get in terms of global markets? Most of the deep corrections that we have seen in India are led by global markets. What is the sense that you get?

This is a phase where India is going to slightly underperform the world markets. The structure for the US markets is that the correction looks incomplete, but the pullback can come close to the May lows for the US equity markets but it may not break but during that time Indian markets might underperform and break the March lows, which it has been protecting for some time.

If we look at the Yen-Dollar index, Yen is at a 20-year low. Yen is an important component of the dollar index though not the heaviest one, but it usually tends to lead. It has an indication that the dollar index has not completed its bounce but when it touches 105, one more bump up is possible. Fresh 52-week highs coming up for the dollar index will not translate in the interest of emerging markets. So, if the dollar index were to make a push and there is a possibility it is going to clock fresh 52-week highs, watch for 103.25 on the dollar index spot. If that prints, you can be sure of fresh 52-week highs coming for the dollar index. That is going to translate into pressure for the emerging markets.

Sticking to the global updates, we are seeing a lot of action happening in the commodity space. Some are reaching their earlier peaks. Also, in what timeframe, do you expect the dollar index to breach that 105 level mark?

At the moment, it is not a foregone conclusion as I need to see a print of 103.2. Once that is done, the move to fresh 52-week highs for the dollar index will be pretty swift. I do not think it will take beyond a couple of weeks. So, when it comes to commodities, Brent has the potential to clock fresh record highs. If Brent were to cross $ 123-124, there is a greater probability that we are going to see $ 140 for Brent. Natural gas is still to cross about $ 10 but that will be the final high, but Brent probably has a much bigger upside to work with.

When it comes to precious metals, it is either going to go back and test the recent low of about 1,700 odds or it is all bottom and it is probably going to go back to the highs but given the idea that dollar index is likely to head higher, I think precious metals will go back to test the recent lows it made in the last few weeks and then resume its uptrend. I would expect gold to hit somewhere close to record highs and silver somewhere about $ 35 at the end of the year, it is not going to be quick. It will be a little bit later too.

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