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Nifty Is Due For Short-Term Correction: CLSA Technicals

On the global market front, Balanco does believe that it’s time to harvest gains. 



Employees walk past an electronic board displaying the rupee’s exchange rates against the U.S. dollar, from top, euro, pound sterling, Japanese yen and Chinese yuan at the National Stock Exchange. (Photographer: Dhiraj Singh/Bloomberg)
Employees walk past an electronic board displaying the rupee’s exchange rates against the U.S. dollar, from top, euro, pound sterling, Japanese yen and Chinese yuan at the National Stock Exchange. (Photographer: Dhiraj Singh/Bloomberg)

The divergence between building price and momentum panning out over the last three months can lead to a correction for the Indian benchmark Nifty 50 Index, said CLSA’s global technical analyst Laurence Balanco, in his latest note to clients.

He also added that the correction, if it does happen, should be looked upon as a buying opportunity, as the drop will only be a short-term blip.

Due to the bullish long-term profile for the Nifty, any short-term weakness back towards the 8,989-9,191 area should be seen as an attractive buying opportunity in anticipation of further gains towards our next target areas at 10,350, 11,547 and 12,000.
Laurence Balanco, Global Technical Analyst, CLSA’s Note To Clients

The rationale for the three target prices stated by Balanco are as follows:

10,350
Where the advance from the low of December 30 would match the February-September 2016 advance in percentage terms.
11,547
Where the advance from the lows of December 2011 would match the October 2008-November 2010 advance in percentage terms.
12,000
The measured move target from the March 2015–to-date consolidation pattern.

The picture is slightly different on the global front, said Balanco, who believes its time to harvest gains, adding that it may not be the right time to add any risk to the portfolio.

A break below 2.12-2.16 percent in the U.S. 10-year yield or of Brent crude rices fall below $41.51-43.57 a barrel could lead to a steeper decline over a three-month period. The new record set by the S&P 500 earlier this week, may not be strong enough to sustain the rally triggered by the break above 2,395 on March 1.

"Many of our momentum, breadth, headline indices (Dow Theory non confirmation) as well as credit spreads are flashing their strongest warning signals since early 2015, said Balanco. “These signs of non-confirmation line-up with our cyclical model, which peaks in July and falls into October.”