Can markets Witness a Setback near term?

Published: Fri, 07/03/20

From extreme bearish to a point of question is where the market is. Not all the negative sentiment is off the table but what we do have is some trade set ups that can cause a short term set back like inter market divergences between nifty and bank nifty. Here are some some updates on the Nasdaq that reflect similar sentiment.

Rohit Srivastava

The Truth About The Markets

Gold Bugs index HUI

Following the move in gold and silver the HUI or gold bugs index is also breaking out with a rally that looks like 5 waves from the recent low.

hui 010720

Shanghai Composite

The Chinese stock market has been up big for 2 consecutive days. This after what has been prolonged wave 2 crisis period. During this wave 2 down the Shanghai index did not make a new low but was faced with the worst economic and social mood news. From riots in HSI, US trade wars to the Pandemic epicenter. The case is ideal when sentiment is as bad or worse in wave 2 compared to the bottom before wave 1 started. This divergence in mood is what fits the wave 2 higher bottoms based on the Psychology of wave patterns. It is the reason why counter intuitive thinking is so difficult. If news is so bad at the wave 2 lows is why no one wants to buy that bottom and does not believe in it. Wave 3 eventually leads to recognition that the worst is behind. This is the stock market setup so far.

shanghai 020720

Nasdaq 100

The Nasdaq - appears like a ending pattern but is mostly wave 4 done and trying to start wave 5 up. The problem is that it quickly hits a sentiment extreme recently and was at 93% bulls on the Daily sentiment index last night. So while it could still trend up, in the near term do not rule out more corrections and a longer time wise consolidation in the current trading range before we make new highs.

Nasdaq 030720

DJIA diverges from the Nasdaq

A prolonged divergence between the Nasdaq and other US indices has developed where the higher highs during the last month in the tech index were not confirmed by the Dow Jones or Russel or the Transports. This can be a set up for near term set backs if any, and unexpectedly. Unless the other indices catch up there is risk that the they all pull back again to the lower end of the trading ranges at least as seen by drawing a trendline of the recent lows.

DJI 030720

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Rohit Srivastava
www.indiacharts.com
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