»Fast Profits Daily by Equitymaster

On This Day - 17 JUNE 2022
Is the Market Correction Over?

Brijesh Bhatia, Research analyst

The stock market correction has been severe. Fear on the street is at an extreme level.

But what if I told you the end of the correction could be near? Would you believe me?

Well, in this video, with the help of my charts, I'll show you why I'm saying this.

Watch the video and let me know your thoughts on this.

Hello viewers. Welcome to the Fast Profits Daily. Myself, Brijesh Bhatia.

The markets have been tumbling, especially if you look at the momentum, it has been very, very bearish. The fear on the street is very, very high. Dow Jones corrected right from around 36,000 back towards 30,000 levels. Again, the cause of concern is the inflation and the Fed which has done a 75 basis point rate hike to control the inflation.

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Now, if I look at the momentum, yes, the bearish momentum continues on the Wall Street as well as the D-Street. As we are the followers of the US markets, most of the global markets are trending bearish in line with the US markets. Though we might have outperformed against the US market but the structure seems like the crash is coming to an end.

 

Let's start with the Dow Jones first. If I look at the Dow jones chart over here, the first chart, every time the Dow Jones hits the highs that high acts as a huge support zone for the bullish momentum.

Now, if we look right from 2008, the 20066-2007 highs acted as the support back in 2013-14. Then the 13-14 highs acted as a support zone when the pandemic fall happened. And now the pre-pandemic high, which was somewhere around 29,500-29,800 will act as a major support zone for the Dow now.

If you look at the lower panel over here, the RSI, whenever the RSI tests around 30-35 zone on the weekly scale, it tends to give a bullish momentum. Only once when the pandemic low has happened. And in back in 2008-2009, when the financial crashes happened, we saw it falling below the 25 zone and testing around 20-21 levels, but so far, if you look historically, every time it tests around the 30-35 zone, the momentum comes back into the bullish scenario.

 

Additionally, if I look at the second chart over here, if you look at the same chart, where I have plotted the 200 weekly exponential moving average which is termed as long term average and I if look at this average, the 200 weekly exponential moving average, it is placed around the previous highs, which was around 29,000-29,500 levels, and it will act as a support zone.

Now, even if you look at the historical move, apart from 2008 and the pandemic, we have always seen that the 200 weekly exponential moving average acts as a support zone on the Dow Jones, though these were again the black swan events, the financial crisis or the pandemic.

As of now again the rising inflation is there but if you look at the historical move, the 200 weekly exponential moving average plays excellently on the Dow Jones on the charts.

Coming on to the Indian charts. Look at the Sensex over the here.

 

Now, look at the similar lines on the Sensex chart over here. 2008, if I just connect the highs, the support is placed right at around 48,000-49,000 levels. Plus if you look at the previous two red lines over there, the previous high may also act as a support zone for Sensex.

So I think we are trending at around 52,000 levels. Probably, I think the correction might end between 48,000-50,000 or probably 51,000 levels, where we are looking at the multiple support zones where Sensex is holding on in the 50,000-51,000 range. So yes, comparing with the Dow, the Sensex is also holding its support zone.

Again on the lower panel, if you look at the RSI over here, back in 2008, back in 2020, again the financial crisis and the black swan event, the pandemic, where the RSI has slipped below 20 zone, but if we look at it, whenever it tests the 30 zone, the Sensex seems a very, very excellent opportunity for the bulls.

 

Additional if I just add the average over here like we did in the 200 weekly exponential moving average, which acts as a support zone on the Dow, on the Sensex, the 100 weekly exponential moving average plays a key important role.

Now if we look right from 2008, whenever prices tests or hovers around the 100 weekly exponential moving average, it acts as a huge support zone.

Similarly now we are back to 100 weekly exponential moving average onto the Sensex and we have seen Sensex going 2.6-2.7% away or below the 100 weekly exponential moving average and comeback very, very strongly.

So yes, if I look at it in line with the levels, what the trendline is showing, what are the averages showing, probably I think 48,000-51,000 plays out to be a very, very crucial buying opportunity for investors looking at the Indian as well as the Dow Jones.

 

But if I just look at the fear and greed over here on the Sensex chart, if you look at this month, this is a monthly chart of Sensex where I've added the fear and greed indicators. Now if you look at the fear, it is right at the lowest level. I mean, the fear is at the highest level and if you look at this this indicator, it is going to its lowest level. It means the fear is very, very extreme in the current market scenario which was never seen in 2008 as well as 2020.

Though this is the monthly chart and we still have 15 days to go in the month that we are to close but yes, looking at the structure as of now when the markets are trending at around 45-46 weeks low, the momentum is very, very bearish and the fear on the D-Street is an extreme level.

So I believe if we look at the historical move, in 2008, when this fear was tested, in 2020 when this fer was tested, though 2020 was and one of its kind where we saw a V-shaped recovery, but if we look at 2016-2008, the momentum was coming back very, very strongly after an extreme fear.

So I believe it is a time to accumulate for an investment per se. If you look at the Dow and the Sensex, both are tending at a long term support zones. So yes, it is a good time for investors to look at stock.

Again as a trader the risk of gaps will continue because the volatility is very, very much higher comparing with the US market as well. So yes, as a trader, I would suggest look for low leverage position sizing and look for stop loss based trades. Don't risk high but as an investor, I think it's a good time to accumulate the best fundamental stock or the best stock that you think which are in the current marker scenario. Look for an accumulation in those kind of stocks.

Signing off Brijesh Bhatia.

Warm regards,

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

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