Empirical

Notes

Weekend Rundown: 13th June 2021


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Finally, it Happened! Nifty Smallcap closed above its 2018 High. If we look at stock structure over the last year, price crossing above its 2018 high has been the signal for the multi-year base breakout and huge rally thereafter.


What's unique about 2018?

The Global risk peaked in 2018. Here are a few factors which determine the market's risk appetite.


Rising Copper price tends to go well with smallcap segment of the market.

The composite price of Copper, Aluminium, Nikkel, Zinc, and lead peaked out in 2018, currently trading above the base.

Rising commodity prices indicate the global demand for growth and expectation of higher inflation, interest rates.


The ratio of Nifty 50 relative to Government securities(Bonds) peaked out in 2018. Now it has broken above its extensive base. On a longer horizon, Largecap stocks are outperforming liquid bonds.


Summary of Nassim Taleb's Incerto: Something is knowable doesn't mean that you know it; Something is unknowable doesn't imply that you can't do anything about it.

There are a lot of factors that impact the market. To make sense out of it, we study a few which have a price associated with them. Why price? Because its the present reality, it factors in all expectation and expectation changes all the time so do the price.

In technical analysis, we use tools to do something about unknowable using the knowable(Price).


Few stocks breaking above 2018 highs.
Elecon Engineering
  • A breakout above the decadal base.

  • Strong Momentum on RSI


Nucleus Software
  • Retesting 2007, 2017 highs

  • It was moving sideways over the base breakout level and underperformed the IT sector over 8 months.


Action Construction Equipment Limited
  • Momentum Declining

  • As long as above the base level.

Sarda Energy & Minerals




Smallcaps tend to be more volatile, so they require strict risk management. There are about 50 stocks out of 670 BSE smallcap stocks showing a similar breakout. It is easier to manage a position with a base breakout as it has a higher success rate. The long/short level is clearly defined compared to an outperforming overextended stock.

Sectoral Watch


RRG is used to analyze the relative strength trends of several securities against a common benchmark and each other.

Here we are looking at the relative performance of underperforming sectors.

Nifty Realty in a longer horizon is weak, but it is in a strong quadrant on a shorter duration.

Nifty Media is in an improving quadrant against the market.

The best fit is the strong sector in the weekly timeframe and gaining momentum in the daily timeframe.