Will Bears Overpower Bulls? – A Technical Viewpoint, Revisited

Will Bear Market Overcome Bull Market?

In our blog article “Will Bears Overpower Bulls? A Technical Viewpoint” dated 21st May 2018, we had mentioned that factors like the Rupee-US Dollar Exchange Rate that was nearing an all-time high, and Brent Oil prices, 10-year Indian Government Bond Yields and 10-year US Government Bond Yields that were all increasing, were likely to have a negative impact on Indian markets and NIFTY was likely to move toward 9,700 – 9,800.


Let’s review what actually happened in the market thereafter

  • Weekly Chart: Rupee- US Dollar Exchange Rate dated 5th October 2018

    USDINR Technical Analysis dated 5th October 2018- Weekly

    The article on 21st May 2018 mentioned that Rupee- US Dollar exchange rate was likely to decline towards 65-66 from 67.99 and then next move towards 73-74. Since then, the Rupee has appreciated below 67 and then moved on to hit 74

    From here, the Rupee is likely to appreciate towards 71-72 and then continue its decline towards the rather scary target of 79-80.

  • Weekly Chart: Brent Oil, dated 5th October 2018

Brent Oil Technical Analysis dated 5th October 2018

The same article on 21st May 2018 also Opined that Brent Oil was likely to decline towards $75-$77/ barrel from $79 and then it was likely to move towards $88-$90/barrel. Since then, Brent Oil has declined towards $71/barrel than the anticipated decline towards $75-$77 and now again, it has moved towards $84/barrel.

From here on Brent Oil is likely to continue its upward trend toward $88-$90 /barrel.

  • Weekly Chart: 10-Year Indian Government Bond Yields, dated 5th October 2018

India 10 Year Government Bond yield -5th October 2018-Technical Analysis

The 21st May 2018 article further mentioned that 10-Year Indian Government Bond yields were likely to decline to 7.5-7.7 from 7.8, and then likely move towards 8.3-8.5. Since then, Bond yields actually moved towards 7.7 and then moved up to the recent high of 8.23 – just shy of the predicted 8.3-8.5 and then corrected towards the current level of approx. 8.0.

Going forward, Bond yields are likely to continue up move towards 8.3 -8.5.

  • Weekly Chart: 10-Year US Government Bond Yields,  dated 5th October 2018

10 Year US Government Bond Yield dated 21st September 2018

Again 21st May 2018 article  mentioned  that 10-Year US Government Bond yields were likely to decline towards 2.9-3.0 from 3.1 and then likely move towards 3.7-3.8. Since then, Bond yields actually moved lower towards 2.8 than the anticipated move towards 2.90-3.0 and now has again moved above 3.2.

From here on Bond yields are likely to continue up move towards 3.7-3.8.

Thus all the above four major macro-factors moved more or less in line as anticipated in our article. But it did not have a major negative impact on the Indian market, especially NIFTY.

NIFTY, instead of declining towards 9,700-9,8000 from 10,600 due to adverse macro-factors, kept on moving upwards and went on to make the recent peak of 11,760 before declining sharply again towards 10,200

Let’s try to analyze why NIFTY kept on moving up in spite of adverse macro-factors

  • Re-Categorization of Mutual Funds

As per the SEBI mandate, many mutual funds had to re-categorize their schemes as per the actual objectives of each scheme. Hence Large-cap funds, whose mandate was to invest only in Mega/ Large companies and who had invested in Small-cap/ Mid-cap companies to generate alpha from the rally in Small-cap/ Mid-cap companies, had to redeem their Small-cap/ Mid-cap positions and increase their allocation to Mega/ Large companies.

This adjustment in the portfolio triggered rally in Large-cap companies and sell-off in Small/Mid–cap companies. This rally was evident mostly in NIFTY Stocks only. Hence NIFTY moved up significantly as against the broader market. Again in NIFTY, a handful of stocks with high weightage in NIFTY moved up, significantly especially HRITHIK stocks i.e. HDFC Bank-HDFC Ltd. twins, Reliance Industries, Infosys, TCS, Hindustan Unilever, IndusInd Bank, and Kotak Mahindra Bank.

  • Liquidity, The Key Market Driver:

In India, other asset classes like real estate, gold, and fixed income instruments have underperformed in recent years. Hence investors did not have a choice but to keep pumping liquidity in equity markets, either directly or through mutual funds, especially SIPS. Hence even though the market seemed to be highly overpriced, liquidity flows kept it at elevated levels.

Recently, with Yes Bank, IL&FS, and many other companies facing regulatory/ default/corporate governance issues, and with increasing oil prices, depreciating rupee and increasing bond yields, liquidity commenced to drain out of the market and market has started declining.

 Going forward, the market is likely to continue its bearish phase at least until the most-awaited General Elections happen in 2019.

Indian Market Going Forward

Weekly Chart: NIFTY dated 5th October 2018

NIFTY Technical Analysis dated 5th October 2018

There will probably be a downward move from here towards 9,900-10,100, followed by a bounce towards 10,700-10,900 and then a continued downward trend towards 9,000- 9,200. If NIFTY does not get support in the range of 9,900-10,100 then we might see a continued decline towards 9,000- 9,200 as well.

Happy Informed Investing!

Mandar Chapekar, ACA, CFA


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Portfolio Management Services (SEBI Registration No. INP000002965) are offered through Multi-Act Equity Consultancy Private Limited (CIN: U67120PN1993PTC074692), which is a wholly-owned subsidiary of Multi-Act Trade and Investments Private Limited; Investment Advisory Services (SEBI Registration No. INA000008589) are offered through Multi-Act Trade and Investments Private Limited (CIN: U65920MH1997PTC109513).