Market to Dance with Dow Music
 
Markets opened with a sharp rebound reacting to the global clues, but later fizzled out by the close of the week. Bulls were frightened when the minutes of US Fed meeting were made public. Inspite of roaring multiyear bull market the inflation expectation by the FED were still muted throwing contrasting signals a) whether the US economic recovery is weak enough and susceptible to recession thereby causing FED to stall interest rate hikes or b) low inflation is the new normal in the digital age and therefore FED will not be in a hurry to increase interest rates. The first case is bearish for the market and second is bullish case scenario. US stock market is somehow now discounting the first possibility that economic recovery is on the weak footing and therefore the stock market is showing weaknesses, plus President Trump’s electoral promises are fizzling out, his ability to carry out reforms is waning. The reduction in corporate taxes from 35% to 15%, the infra spending promises, replacing Obamacare bill with a new Better Care Reconciliation Act , all these are hanging in the limbo, but the US stock market have moved up from 18000 in Dow Jones to 22000 on hopes and expectations, the ensuing massive rally of 20% is now at bigger risk. Sharp fall in US market is going to cause global ripple effects and India too will feel tremors. We believe multiyear US market top is already in place.
 
Events of the Week:
 
Government has further tightened pharma companies profitability by bringing in Pricing control on approx 70% of the drugs which may eventually hamper future investments in R&D, these steps may turn out to be detrimental for the long term growth of the sector. The knee replacement costs have also been capped which will effectively enrol more and more people for the same. The social focus of the government on the Pharma sector does not portent well for the investors in the long term.
 
Technical Outlook:
 
Medium term trend line has been decisively broken indicating that the upward journey is over and the phase of correction will unfold. Historically corrections are in the range of 38% to 50% of the entire rally which gives a ballpark level for Nifty 50 between 9300 to 9150. Corrections are time consuming and check the patience of bulls, rallies begin only when such impatient participants are frustrated and out of the system. All rallies should be utilized for selling and exiting long positional trades. Investors should remain on the side lines. Traders should wait for the bounce to short sell, currently the market is oversold.
 
Nifty Today
Nifty 50 Weekly Chart
Expectations for the Week
 
The result season is all most over. GST is in full force, how it is impacting the industry and the people at large -"everyone is waiting for". The only way to objectively measure is through the corporate numbers and that will be out only in the month of October. Market will therefore not be in a hurry to move ahead till the impact of GST is known. Markets in the mean time will hibernate and correct the high valuations at least till the time next quarterly numbers are out. Market will remain volatile due to ongoing turmoil in the global financial markets. Investors are advised to stay on the side lines and wait for the correction to get over, short bounces should not be considered as beginning of bull market rally. Traders should adopt the strategy of sell on rallies.  NIFTY50 closed the week at 9837.4 up by 1.30%.

Market to take a bigger correction
 
Markets opened in a neutral mood but the SEBI ban on 331 stocks spoilt the bull party although the actual impact of 331 stocks on the market cap is miniscule but it had a big sentimental impact. North Korea threats had sent shivers to global equity markets to which even India succumbed, injuring the bulls on the Dalal Street. However it may seem to a layman, that geopolitical situations have caused such correction to happen, but the fact is that the markets were deeply over bought and therefore even a slight indication of frightening events would completely change the state of market participants’ mood from greed to fear and that is what precisely has happened. This is how market behaves, when everyone is bullish, it just turns and the opposite happens. In a recent broad based interview of market experts nearly 85% of the participants said they were bullish on the market, that is just the right time to leave the majority camp and go against the crowd.

That is what even we have been saying since last two weeks. July 28 -“Intermediate top in place market ripe for correction”, Aug -4 “Nifty is a mirage,.... but the wider market has already started to weaken. The internal breadth indicates that the correction will further accelerate going forward.  Keeping endless patience and not getting carried away in such euphoric phase of the market, but, waiting for correction to set in and then investing would make investors a lot richer, rather than investing at the current levels”.Our stance is still the same the correction will take longer time to unfold.
 
Events of the Week:
 
SEBI initiated demonetization of 331 shell companies to curb manipulation and in the process restricted the conversion of black money into white and vice versa. This will go a long way in cleaning up the system. The proposal to link Aadhaar with KYC is the last nail in the coffin to kill ways and means of black money creation and conversion. This will truly make capital market SWACHH, free and fair from manipulations.
 
Technical Outlook:
 
In weekly chart, Nifty has formed engulfing bear with a big real body confirming the change in the trend in the intermediate term. The correction phase of the market has begun. Indeed the Small Cap index which captures the mood of retail public had formed an ending diagonal pattern which is a powerful trend reversal pattern. All these indicate that sell on rise has to be the strategy for the traders and investors should remain on the side lines. Traders should wait for the bounce to sell, currently the market is oversold.
 
Nifty Today
 
Below is the Chart of Previous weekly note dated August 4th 2017
 
Nifty Today
Nifty 50 Weekly Chart
Expectations for the Week
 
The market is in a state of shock. Sudden reversal of market trajectory has taken majority by surprise. However we had cautioned on Aug 4th “The head of North Korea, Kim Jong Un is fearlessly defying calls of restraints potentially increasing the chances of conflicts which will not augur well for the equity markets.” The below par listing of SIS ltd inspite of higher opening also indicate that the bullish strength is punctured for the time being, although Cochin Shipyard ltd strengthened on its own solid fundamentals. Market will remain volatile on fears of geopolitical factors. The biggest worry is the alleviated US markets, which we believe has started to correct which will have a rub off effects on Indian markets too. Investors are advised to stay on the side line and wait for correction to get over, short bounces will not be beginning of bull rally, so keep patience for the time being and stay away. Traders should wait for bounces and sell on rallies.  NIFTY50 closed the week at 9710.8 down by 3.53%.

Correction to enter deeper territory
 
Markets opened with positive sentiments rejoicing SBI’s saving interest rate cut by 0.5% a big booster to its profitability, but by the close of the week the stock price was back to square one. This behaviour of SBI, gives out an unequivocal message that Mr Market is in no mood to go up inspite of good news for company.  Nifty is a mirage, strong companies like RIL, HDFC twins etc are holding it up, but the wider market has already started to weaken. The internal breadth indicates that the correction will further accelerate going forward.  Results of companies that have large distribution channels have been impacted and therefore bad results should not be taken seriously. Few companies that reported quarterly profit growth were Tech Mahindra 36%, Indigo 37%, Edelweiss 41%, Motilal Oswal Fin Ser 28%, Voltas 18%, Colgate 8% respectively. Some that recorded lower numbers were Lupin (59)%, RInfra (24)% respectively. Keeping endless patience and not getting carried away in such euphoric phase of the market, but, waiting for correction to set in and then investing would make investors a lot richer, rather than investing at the current levels.
 
Events of the Week:
 
Government has unleashed another round of petroleum sector reform by increasing kerosene price by 50 Paisa and Rs 4 increase in price of LPG cylinder per month respectively. This will be the next trigger for the refinery sector to get rerated. 0.25% Rate cut by RBI was disappointing as Rupee will rally further on the back of high real interest rates in India as opposed to zero or negative real interest rate across the world. Rupee appreciation will not only impact exports but will also erode profitability of Indian companies due to cheaper landing costs of imports.
 
Technical Outlook:
 
In weekly chart, Nifty has formed a small body doji star indicating a pause in the upward journey. Small Cap index which captures the mood of retail public is forming an ending diagonal pattern which is a powerful trend reversal pattern, whenever it breaks on the downside the fall will be sharp and swift.  Although long term trend is still bullish but market is ripe for correction as the internal breadth is weakening. Short term traders may book profits at current levels or trail the position at 9750.
 
Nifty Today
Nifty 50 Weekly Chart
Expectations for the Week
 
Geopolitics equation is changing rapidly. President Trump had to reluctantly sign the bill approved by the US Congress to impose sanctions on Russia which will deteriorate the relationship between two powerful countries. The head of North Korea, Kim Jong Un is fearlessly defying calls of restraints potentially increasing the chances of conflicts which will not augur well for the equity markets. Border standoff with China doesn’t seem to subside as issues are more serious now than ever before in the past. Corporate results season is nearing an end, market will watch for any global clues for any decisive moves.  Valuations and sentiments are at alleviated levels. IPO of Cochin Shipyard drew record over subscription of 76 times. Such levels of oversubscription are signs of overheated market. Investors should refrain from making fresh investments but hold on to their portfolio in the alternate selective profit booking could be done.  NIFTY50 closed the week at 10066.40 up by 0.51%.