The Indian market could be in bullish territory. If the Sensex holds the pivot level of 17,631, it can go up to 21,000 in the next few months says Murray Gunn, head of technical analysis, HSBC Bank Plc, in an interview with Samie Modak. An accident is waiting to happen in the US markets, he says. Excerpts:
In your recent report 'Animal spirits rising', you've highlighted that the underlying psychology of investors is turning bullish again...
If a market is a proper bull market, then each sector of the market should be making new highs. You don't just look at the Sensex index making new highs, you also look at the IPO index. It is the sign of the new money coming into the market, It is essentially a sign of greed. We need greed for the bull market to flourish. We need people to be looking at new companies to make some money over their share price moving high. The underlying psychology is showing that this is happening. The Bloomberg IPO index has roared ahead. The BSE small cap index looks as it might just break out into new highs for the year. So that would be extra confirmation that the Sensex and the Indian market in general is in a bull phase.
What are the levels that one could expect on the Sensex?
As long as 17,631 on Sensex cash index holds as support level, then we are looking at higher levels. In the next few months, we can touch 21,000 and then 25,000 over the next year. If the main pivot level, 17,631, doesn't hold then the probability is that the Sensex will go lower in the shorter term. But at the moment, given the structure of the market, it looks as though the probability is that the market will go higher. So having a long position on Sensex, with a stop loss below 17,631 makes sense.
Despite the weakness in the economy, do you think the Indian market can scale new highs?
It is the stock markets' job to anticipate the future. We all know as market participants that a market move will happen and then some news event will come out. So, in that sense, the stock market leads the economy. The psychology that is coming through and the herd mentality that is coming through at the moment in India suggest that the economy will be on an improving trend.
How are the US and European markets looking on the charts?
Dow Jones priced in dollar is been going up since 1999, but Dow Jones in real money (in gold) has gone down. So there is a massive diversion. A similar diversion happened back in 2006-07, which led to the crash in 2008-09. This is one of the biggest warnings you are likely to see ever. The stock market is an accident waiting to happen in the US. It is called a QE (quantitative easing) bubble. It is an illusion created by the QE effect. The real underlying psychology of the stock market is bearish. If it was a real bull market, then stocks should be going up in real terms as well as normal terms.
But if the European and the US markets fall, how can developing markets like India remain insulated?
You have the US and the European market looking very bearish, but you have VIKT (Vietnam, India, Korea and Taiwan) markets looking very bullish for the next few years. So, the long-term Elliot Wave cycle is showing we should have a large de-coupling effect between the US and Europe and Asia.
What could be the probable reasons for this de-coupling?
The Elliot Wave scenario just looks at the price, volume and the pattern within that. The reasons become known after it happens. The market is anticipating a change.
What are the important levels for the US markets?
On the S&P, the important inflection point in the short term is 1,464. As long as the S&P is lower than these levels, in the next few weeks, we could see 1,200 and eventually towards 2009 lows for the S&P and Dow Jones.