By Mukul Pal
This is what we published in January 2012 in the piece, 'Spotting the next bull move': "For us a sub-4,500 Nifty, nearing 4,000 is a screaming buy irrespective of anything. The bottom may happen next week or the coming quarter, but when it happens, everything is going to rocket up to historical highs. And, the worst sectors - banks, power, real estate, oil & gas - will be the new best performers."
There are reasons why we are not waiting for an end of the year January forecast, but starting right away to reinforce last January's bullish call.
Let's first review what happened. Nifty did not make a low in the first few weeks of this year, but stretched the low well into June 2012. Since 2012, the prices have pushed up from 4,531 low in December 2011, retested 4,800 in June 2012 and moved to the current high at 5,700 levels. Though the sub-4,500 buy levels never happened, the bull market case worked out well.
Now, for those who still feel we are in a bearish market, let's state some facts. First; 5,400 levels is a classic 24-month resistance (supply point) turned support (demand level). For 24 months buyers and sellers are contesting around 5,400 levels. So, now that buyers have overwhelmed the sellers yet again at respective levels, there is no negative price confirmation till prices dip back below 5,400. Second; the multi-week price action from September is a sideways action that is more consolidating than distributing. Above 5,600 levels the uptrend continues. Third; unfortunately for many of us who are less visual it's hard to identify a sideways structure from a daily up-down Nifty movement.
Fourth; focusing on Nifty is itself a bad idea, as Nifty "sleeps" more than a majority of traded assets in India. Portfolios can outperform while Nifty sleeps. Fifth; when the Nifty trends negative it can bias most portfolios and hence it becomes important to understand when to cash out. One needs more than a perspective, one needs a system to understand when to cash out and when to stay invested. Sixth; along with the Benner 2011 low which stands firm, the October-November negative seasonality which is behind us, we have entered a positive November-April annual Yale Hirsch positive cycle seasonality.
From a technical perspective we continue to see Nifty drift up to 6,000 in 2012. How fast it moves to 8,000 needs more analysis. In terms of intermarket Sensex should outperform Dow, so if our global bullish cash also remains intact, a new high on Dow would mean more Diwali fireworks on Nifty. The INR perspective also is about a secular strengthening over the months ahead.
From a statistical perspective, if you want to cut out the noise, the news, the fundamentals, the emotions and invest passively, year end to year end or January to January, you simply have to buy the worst. The philosophy is simple. The worst performers tend to outperform. Any India 30 portfolio selects the worst performing 30 stocks after they show an inflexion to reverse. This inflexion could be a positive price trend and a positive Jiseki cycle. Passive investing is also about large holding periods. Worst negative outliers take time to reverse and when they do, their outperformance could persist for more than a straight 12 months whether Nifty is sideways, sleeping or even falling.