Is Stock Market Crash on the way ? [ 4 charts ]

Did you invest in ELSS recently for tax saving ? If you have done that with intention of getting quick great returns in 3 yrs and then liquidate the funds, you might not like this article. Indian stock markets are seeing some serious sell offs in last 1-2 months and there are some reasons for it . In this article we will look at some indicators which can help you take further decisions.

Stock Market Crash India

Why Nifty Started Falling from levels of 6300 ?

You should ask why shouldn’t it fall ? Every one has bad memories about markets and 6300 in nifty is a level from where we saw one of the biggest crash in 2008. A lot of investors had really bad experience at that point, as they were stuck at that point and could not sell off in 2008 . They kept their stocks with them in hope to sell it off next time when market reach the same levels. This is what exactly happened, when markets reached the levels of 6300 recently, every one said .. “BOSS.. I am now getting out of markets as I have reached my previous levels, No matter what happens next, I am just out ! ” , which is very natural and well known phenomena is markets.

When majority of people do this,  there is serious sell off suddenly. In technical terms this phenomena is called Resistance and we can see a probable double TOP at the level of 6300 , not a very great thing for people look to BUY :). I say probable double top, because it will only be confirmed after markets break the target of 5350 at nifty (got this tip from Nooresh Merani). It would be a bad situation to watch our for. Look at last 11 yrs chart of Nifty below.

Stock Market Crash

3 major indocators indicating the fall in Indian Markets

There are some serious events which are worth looking at. Lets look at them

1. FII’s are selling

The biggest reason for the current market fall is due to FII (foreign institutional investors) selling off . Suddenly American and European markets are looking better than Indian or asian Indices . Note that US markets are rising from last some months and Europe has outperformed Indian markets by 20%+ in Jan alone . FII’s have sold a lot of in the last 1 month , below is the data taken from NSE website .

FII sold in Indian markets

However, not everyone agrees to this argument. “FII’s have invested around 50,000 crores in Indian markets from the point when Nifty was around 5,400 last time, which was around Aug 2010,  However FII’s have sold taken out just 15% of what they invested, and right now we are at the same levels , so still lot of FII’s money is lying around.

So, the biggest reason for the fall is the fear of rising inflation and interest rates and the way it will affect our markets and economy in coming days”- says Deepak Shenoy of Capitalmind.in .

2. Markets broke its 200 day EMA + important Support points

This is not a small thing to ignore , breaking of 200 EMA is a significant event , and it has happened only twice in last 2 yrs, but it bounced back from that point , However this time it has broken it again and got below it and not bouncing back . Incase it does not bounce back above it , It’s not a comfortable situation . So if you know GOD personally , please pray ! .

Look at the 3 yrs chart below which shows the 200 EMA breaking and other trend line breaking . Learn more about Support and Resistance and other important things related to stock markets here , here and here

Should retail Investor Buy right now for long-term ?

I had a talk with Nooresh Merani, technical analyst at Analyse India , and he feels that the main panic button is still not triggered .

As per him – “The major point comes at 5350 on Nifty which is very crucial, we can not say we are entering a Bear market unless market crashes below the levels of 5350. If that is broken, then there can be further weakness in Indian markets and sell off, However if markets bounce back from these levels of 5350-5400 and go up further, it would be safe to buy only if markets move above 5700 levels , unless then better to be high on cash and not take any action. If markets can move above 5700 again , it would be a great idea to deploy cash and see levels of 6800-6900 on Nifty” – Nooresh Merani (blog)  .

Stock Market Crash

3. Nifty PE touched 25 and now moving down

Please read this post on Nifty PE incase you have no idea what is it . Nifty PE has been a good indicator till now to show the over-bought and over-sold regions and we can expect it to be a good indicator . In the last 10 yrs , It was the second time when Nifty PE went beyond 25 , Only in 2007-2008 it was around 27-28 and even body knows what happened after that . Even now Nifty PE touched 25 and now its moving towards 20 , I would not be very bullish for long-term in this kind of scenario . But there are cases where it has bounced back from 20 again to move higher , so keep it as a possibility . See the chart below which shows you the Nifty PE movement in last 10 yrs .

NIFTY PE indian stock markets

Conclusion

Technical analysis is an art of reading charts and there are some serious concerns seen in the chart , however it’s not at all recommended to take the words on rock and believe it blindly . This article and the information here is to facilitate in your decision-making process . By no means this article suggests you to sell off anything .

If you are a long-term investor with monthly SIP’s running in Mutual funds , you should better concentrate on what you are good at in life and keep your SIP’s running . Only traders or short-term investors trying to catch the market movements should take decisions based out of the information provided . Also if you are going to invest in markets or mutual funds for 1-3 yrs and are a first time investor , you should understand that there is a possibility that you do not get much out of markets in returns .

Comments please. Give your comments on the charts above and what do you think should be the next move ? Lets not predict, but prepare ourself for whatever happens next .

Note : Nifty was at 5526 at the time of publishing this article .

114 CommentsAdd Comment

  1. Deena

    Hi Manish,

    I don’t find at which date you wrote these articles. It is bit difficult to correlate the words “now” “today” “this year” etc.,

    Say you wrote this article on xxx month, yyyy year. But I am reading this article on aaa month, bbbb year. As a reader I obvious would like to know when this article was written to know the meaning of “now” “today” “this month” “this year”.

    I have one suggestion or rather request… :)
    Could you please add date to the posts when you are writing it.

    Thanks,
    Deena

  2. seo

    Hey! I just wanted to ask if you ever have any issues with hackers? My last blog (wordpress) was hacked and I ended up losing many months of hard work due to no backup. Do you have any solutions to protect against hackers?

  3. ajay kumar

    u analysed the market very well…… nw we see wat s going on…. please see t current market situation & publish it ….

  4. Ram

    Manish,

    Markets have definitely moved downwards since the time you wrote about an impending crash possibility.

    What are your thoughts from here on? Do you think it looks like we might face a crash similar to 2008 levels? The macro-economic news don’t seem encouraging at all, let alone our own issues with inflation and high interest rates.

    Thanks,
    Ram.

  5. Harpreet

    Dear Manish,

    I guess I was a stupid to invest in Sept 2010 in one go Rs.50000/- now I am at a loss of 6,000/- but I am long term investor, I mean more than 4-5 years…. What should be my next move…. I am Confused….

    • Harpreet

      Even in Sept 2010 , the Nifty PE was as high as 22-23 . So definately it was not the best time to invest . However as you have invested now and as you say you are long term investor , it might be ok to wait for 5-6 yrs to see decent returns . However it depends where have you invested . If its mutual funds ,then its fine , but if its stock , u have evaluate its potential in coming times .

      Manish

  6. kavita k

    Hi Manish,

    Can u please tell me how can we calcualte the MRP of a stock? Is there any formula for the same. Please help.

    Kavita

  7. Ankur

    @moneysights @manish: thanks for response.
    Let me give u background of my 1 lac investment.
    I am having 3 SIPs in different Mutual funds and a no of stocks across different sectors (in large cap only)…..I am an average-market-techincals-understanding investor…I received unanticiptated 1 lac amount from some source and need this money after 1 year period; so looking for short term investment for this amount….the reason I say MF skeptical is w.r.t. 1 yr term, I see equity oriented MF are very risky considering all market issues (fluctuation, FII, etc) currently going on and debt oriented MF generally gives < than even FD interest(currently for 1 yr it is 7.5-8%) in 1 yr period…so I analyzed my portfolio and found I have very less investment in banking sector(considering even investment thru MF indirectly)…and infy is one which I always wished to have on my portfolio…
    please let me know now your views with this background.

    • moneysights

      @Ankur,

      we are perplexed that you think you are comfortable buying infy or stocks directly but feel MFs would be volatile, etc. What makes you think that infy will not fall & MFs would fall!

      moneysights.com

      • Ankur

        @moneysights: I was almost sure that you might be amazed. As I mentioned I am Ok with taking risk on this 1 lac investment. And an average-understanding investor like me get influenced by difference between resistance price and current market price of particular stock. For e.g. in case of SBI, it shot to 3489 in month of Nov 2010 and as on Feb 8 2011, it was around 2600. And based on my little technical knowledge, I thought 2500 is support price of SBI and the trend looks upward, so thought of buying it…i would appreciate if enlighten me with what I thought incorrect…

        • moneysights

          @Ankur,

          Well, we really don’t evaluate stocks based on technicals at moneysights.com. So, would be unable to comment. But, our concern wasn’t about you buying SBI or INFY. It was about what makes you think MFs would continue to be volatile. Besides, putting 1 lakh in 2 stocks might just concentrate your portfolio holdings too much. One needs to be diversified across sectors & stocks. We aren’t aware how many other stocks you have, but if you have none & plan to buy 1 lakh worth of these 2 stocks, it may just be risky. Not that we are saying SBI would go down. But if anyone in the markets knew what would happen tomorrow, investing in stocks would have been much simpler than it is today.

          moneysights.com

          • Ankur

            @moneysights, thanks for your response.
            Investing in direct stocks vs Mutual Funds is about currently in highly volatile market, I tend to gain more control over my portfolio at much granular level. In MF case, I don’t have any control what do they with my money.
            Although MF brings many benefits most important highly skilled manager managing investments etc; but I don’t know during high volatile market I become very possessive about my investments toward MF.

            • Ankur

              I think its a personal preference and the way you share your relationship with your investments . I can see you would be better investing directly in stocks , rather than mutual funds , there are not rules in personal finance that mutual funds are always better than direct stocks .

              Manish

        • Ankur

          Good that you mentioned this point , SBI looks very very strong buy at the levels of 2500 . You can see that level is a strong support point as it has been a previous long term resistance point and have been broken last year .

          This current down move looks like a fibbonacchi retracement of 50% . Should be a very good point to bet some big money with Stop loss of 5%-10% loss for an upside potential of 50-100% .

          I would say go BUY .

          Manish

  8. Ankur

    HI Manish,
    Considering the situation now in stock market, how do u think shud I invest? I have to invest 1 lac rupees. I was thinking of 50:50 investment in SBI and Infosys shares. What is your opinion on this? Investing in Mutual Fund looks skpetical today.

    • moneysights

      @Ankur,

      Any specific reason that you say “Mutual Fund” looks skeptical today?? There is never a bad time to start SIP if one has a long-term investment horizon. Least that Mutual Fund investment would do is offer you good diversification across good stocks with decent return possibilities.

      Also, if you choose to invest in stocks why invest such large amounts at 1 go & that too in only 2 stocks??? One should always invests in smaller amounts & diversify across different sectors & stocks. Smaller ofcourse is a subjective number. So, unless your monthly investment amount is in couple of lakhs, you should not consider investing 1 lakh at one go.

      In these circumstances of falling markets, no one would recommend you specific stocks w/o understanding your risk profile. Its better you make informed decisions on your own or choose to invest in Mutual Funds thru SIP or if you are in a rush, invest the 1 lakh over 2-3 months in good diverified Mutual Funds.

      moneysights.com

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