How to stay invested in a market like this?

Published June 05, 2019

How to trade or invest in a scenario when international indices are looking shaky while domestic market is going gaga?

Nifty 50 index is around all time high and closed above 12000 points for second day in a row. 42 stocks of all NSE listed companies have touched new 52 week high in Tuesday's trade, while 75 have hit a new low for the same period. In a bull market this statistic should have been other way around.

Hausse index, created by Investtech, show the level of optimism among short term and long term investors, and whether the optimism is rising or falling. In special situations, following long rises or falls, hausse analysis can identify the turning points in the market. As per the numbers given in the box below, short term investors are indecisive in which direction they want to take the market. While the long term hausse index clearly shows an overweight of pessimists than optimists. This broadly suggests caution and one must always maintain a stop loss at all times.

An important piece of advice would be to stay away from stocks that are already in a falling trend in the longer to medium term charts, or are breaking down from any price formations combined with RSI value to be below 50 or preferably below 30. Stocks like RELINFRA, CADILAHC, IDEA, RPOWER, ECLERX, RCOM, etc. for that matter should be avoided.

Our research on Trend and RSI for NSE listed stocks for the period 1 January 2007 to 31 December 2018 has remarkable results. Stocks, where RSI-21 breaks below 30, has given an annualized excess return of -10.9 percentage points with respect to Nifty 50 index. Also stocks in falling trend channel has underperformed the index by giving an annualized excess return of -12.3 percentage points.

On the other hand, stocks in rising trend has continued to perform better and has outperformed the index by 9.1 percentage points annually. Additionally in stocks where RSI21 broke above 70, outperformance of 9.0 percentage points was recorded. Latest example for stocks with rising trend and positive RSI are JUSTDIAL, AXISBANK, ATUL, BAJFINANCE, TCS,  NESTLEIND, KEI, LT, RELIANCE, etc. You can find the short, medium and long term analysis of all stocks on our website. For today we write analysis of Nifty 50.

Nifty 50 (NIFTY.NS) Close: 12022.00

Investors have paid higher prices over time to buy Nifty 50 stocks and the index is in a rising trend channel in the short, medium and long term. This signals increasing optimism among investors and indicates continued rise. The index has support around 11700 and then around 11150-11130 points.

The short term momentum of the index is strongly positive, with RSI above 70. This indicates increasing optimism among investors. The index is assessed as technically positive for the short to medium term.

Recommendation one to six months: Positive

The analyses are based on closing price as per June 04, 2019. Maintaining proper stop loss is always recommended.