When we talk about Charts, the assumption is that it refers to Index Charts or Stock Charts. But real information can be extracted by creating charts using data points of multiple stocks that tell a story of its own and gives a better perspective with regard to the state of the markets.
Lets take a closer look at some of the charts.
Rolling 3 Year Returns: Markets have seen a steady climb with Nifty doubling in value since 2014. But what we have seen is nothing more than a speck when looked at how markets have behaved in the past. While the returns seem enormous, we have actually been trending down since 2015 with current 3 year rolling return being just around the 8% mark.
Draw-down from 52 Week Highs:While the fear of 2008 deja-vu keeps many a folk worried, data actually shows that 2008 was a outlier but draw downs of 25 – 30% were much more common and one that seems to be seen every couple of years. With current draw-down being just around the 5% mark, if there are negative triggers, markets have a lot of space to move lower.
Are we still in a Bull Market:Mid and Small Cap stocks have suffered a great deal in recent times leading to one questioning whether the bull market is well and truly over with the large cap indices being held up by a few selective stocks. The answer to that comes from the following charts.The chart below for instance showcases Bull and Bear Markets of the past using Moving Averages. This bull market has lasted, if you were to ignore the whip in between, 104 weeks and is twice as long as the average bull run of the past. This doesn’t mean that this calls for a end, but something to keep in mind.
Market Breadth using Moving Averages:While Nifty 50 maybe down just 5% from its 52 week high, stocks have been battered hard. The chart below plots the percentage of stocks that are trading above their 200 day Exponential Moving Averages. As of Friday, just 33% of stocks were trading above their 200 day EMA’s.Do note this is more of a mean reversion since there is a lag between price and the average and the catch-up can happen pretty fast when markets get sold off in short term.
Ratio Charts:Ratio Charts provide us with perspectives on how the broader index is behaving compared to the Mid Cap and Small Cap Indices.
All in all, Markets seems to still have plenty of legs and while there have been plenty of bad news – from Rising Crude to slowdown in Economy to Political Uncertainty post Karnataka Elections to FII’s selling, nothing, nothing really seems to be able to shake the confidence of the market.
For the broader markets, the May 2018 high and the low’s of March 2018 will be key levels. Breaking the first can result in return of momentum while break of the latter would seriously damage the long term trend and open up possibilities of Nifty slipping to 9000 or below. Evidence for now doesn’t seem to be in that favor at the moment though.