“We will be taking some profits from the Indian car names and moving into pharmaceuticals, which has been underperforming. But Indian banks are the main sector to be overweight,” he says Laurence BalancoTechnical Analyst, CLSA.

What is the biggest risk to the markets right now?
There are four points I would make on the S&P. At least on a technical basis, we get a relief rally in the ongoing bear market that has been set up. The first is that the RUSSELL 2000 or small cap index did not confirm the S&P or NASDAQ 100 lows made during September and October. So we have diversity in the market.

If you look at the momentum indicators between the low set up in September and October, there is slower momentum. If you look at the sentiment indicators, right from the American Association of Individual Investors to the daily sentiment indicators, we’ve been at the extremes of sentiment, which historically has generated positive returns on a 90-day basis, 70% of the time for both S&P. and Nasdaq.

The last point we would make is a seasonal point. With the majority of global indices starting to turn positive here through the fourth quarter, our base case for the technical setup is that we are creating a near-term trading floor for both Nasdaq and S&P that will improve those markets back to his 200-. noon moving. So around 4,100 for the S&P and 13,000 for the NASDAQ 100 – a technical balance within the ongoing downtrends.

What I really want to talk about is what we are seeing with the dollar as this dollar index has recently fallen to around 113 despite the Fed’s hawkish promises and the seemingly cautious optimism currently playing. Where do you see the dollar headed?
Yes, remember that the dollar index is weighted 57% in the Euro followed by 13% in the Yen. Those are the two major currencies, but if we’re just focusing on the US dollar, the DXY and 50-day price action is the main area of ​​support since the lows we established in 2011 came around the tenth area right now. .

What we have noticed in our recent work is that the rate of change on a weekly basis has slowed the dollar index. We think the uptrend is maturing and a break below 110 and the 50-day moving average would strengthen at least another top for the dollar and the pullback to the 103 area. That’s another fact. Although we can get this relief rally, the dollar starts to stop here and be confirmed with the break below the 50-day to 110.

You mentioned in the initial conversation that there may be a short-term trading floor established for the US markets at least. Would you say that it is a similar view for India also because we have not fallen so much in the context of what is happening around the globe? How are you looking at the Indian markets at the moment?
The Indian markets have been quite resilient and in terms of local currency, we are only ever at the peak. In dollar terms, using MSCI India’s US dollar term indices against the S&P, we can see that YTD, India has outperformed the S&P by about 15%. We have found a completely different and more resilient chart structure and the Nifty was in a trading range of 15,200 -18,200 YTD.

With the relief rally in the US market, we can see the Nifty repeating that 18,200 area and may break out of this range. Now we will have two targets and an initial target of around 20,000 distance but a longer term target of 21,400 as our longer term target for a successful breakout from this range. So it’s been resilient and a better year so far. In the short term it looks like we will at least get the test of the 18200 area.

You said 18,200 can be tested. What is the time period you mentioned?
We can do 18,200 in November. In a very short term, we can trade up to the 18,200 area.

What will take the Nifty 50 forward to that mark? It seems like it’s going to be banks really doing the magic trick?
Yes, but it’s a sector that we’ve consistently highlighted as long-term leadership for India and it’s really taken off over the last six months and we don’t really see that changing. So yes, Indian banks would stand out. We started to see some price improvement measures in the under-performing pharmaceutical space. We have seen a better rotation and we would like to highlight the Indian cars, which have been doing very well in the first half of this year.

We have started to see some upside swing momentum. We will be taking some profits from the Indian car names and moving into pharmacy, which has been underperforming. But Indian banks are the main sector to be overweight.

You are saying 18,200 by November. When will we see that magic 20,000 level on the Nifty? Could you give us the timeline on that as well?
To reach that area of ​​21,000 we will need to have more favorable conditions in global markets and that must start with the US recapturing its 200 day moving average. That target of 21,000 is based on the trading range we have seen in the Nifty trading year so far and so the trading range sets the platform or base for that next leg which gives us a target of 21,400.

That longer-term target is more aligned to a more stable global picture, particularly the US recapturing the 200-day moving average. The Nifty can stay in this current trading range and as I said earlier, India can continue to outperform the US markets even in dollar terms. Nifty has performed around 15% in the year to date.

What is the biggest risk you foresee now? Are all the negatives in the price as the Street seems pretty divided on whether or not the US is headed for a recession?

Yeah, so from the foundation of the chart, the main macro market we’re looking at is credit spreads. Historically, we have seen that when credit spreads accelerate, markets around the world become vulnerable to liquidity events that typically create a delta one environment. What I mean by that is that everything falls together. There are no real opportunities for rotation or a top performance as we have seen from India this year.

The main credit range we track is the 10 year Bar Cap US Corporate High Yield yield and the level we are closely monitoring is the 600 to 613 basis point range. As long as those credit spreads remain below that level, we can see a continuation of this cyclical cross action that we have seen in markets and that will at least give the Nifty that opportunity to trade up to that 18,200 area. But if the credit spread were to decrease by 1600 basis points, there is a risk that we will see a liquidity event that will cause the market to sell off without any choice.

What are your top two-three trades right now across asset classes?
Looking at the end of the year, we think Nasdaq does better in this seasonal rally so we think that can go back to 13,000. There will be slightly better rewards than the S&P side. At the same time, the yen can pull back from current levels towards the 140 area. The final ingredient is that the 10-year yield must remain limited around 4%. All that will help in the fourth rebound.

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