The red flag for unstoppable bulls comes from the rupee now

The provocative bulls continued their charge into uncharted territory, often causing technical crashes on short-term charts, as if the universe had conspired to make them victorious forever by scaling new heights. The best thing that has happened with this bull market is that it breathed new life into sectors like metals, capital goods and infrastructure, which had been in deep hibernation since 2007, and they seemed to have launched their own. bull markets after a gap of about 12 years.

Interestingly, the BSE real estate index, which peaked in 2008 at 13,848, only hit a low in 2016 at a low of 1,000. It now looks quite attractive, as it seems to have engaged in the medium term uptrend. At the recent high of 4,298, this index has simply retraced a bare minimum of 23.6% of its total loss from the high of 13,848 and appears to be on track to cover much of its lost ground.

Therefore, any significant correction in the market can be an opportunity to create new long-term exposure to these sectors, as they should ideally outperform the market in the future. The FMCG sector, which has performed its best in recent times, looks a little weak in the short term, while IT seems to be running out of steam. The Pharmaceuticals Index, which entered uncharted territory after a six-year gap after reaching its 2015 high of 14,020 in May 2021, looks like a “cat on the wall”, which can jump back and forth, because it fits undecided. formations with extremely narrow trading ranges over the past five months on the monthly charts.

The auto appears to be the only major index that has failed to reach a new lifetime high, as it is still trading 10% below the 2017 high of 12,108. But luckily on the weekly charts it appears to have recorded another breakout and, therefore, may be a catch-up game in the future, provided it remains above the 10,600 level in the near future.

Interestingly, the BSE PSU index is making a series of lower highs from its lifetime highs of 11,205 reached in 2008 and is still 20% below its all-time high. But it is trading long term trendline resistance on the monthly charts. A further breakout with a close above the 9,000 level can change its long term trend for good, which can create decent trading opportunities from that space.

However, in the midst of all of these positive factors favoring provocative bulls, a bigger challenge for them may emerge from dollar bulls as the rupee slowly weakens and sets a breaking point. Over the past five weeks, the US dollar has appreciated against the rupee, from a low of 72.90 to a high of 75.17. In this process, he also recorded a break of the descending trendline on the weekly chart. Therefore, maintaining above the 74.90 level, the US dollar is expected to initially appreciate towards the 75.56 mark, which is its provisional high. However, by the time the US Dollar hits its provisional high of 75.56, the Rupee should ideally weaken to a new lifetime low above the 77 mark, with an initial target of 79.

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This kind of scenario can lead to a situation like placing the cat among the pigeons, which is likely to tip the boat for Indian stocks well against the wishes of the artificial support given to the bulls through monetary policies. Remember that the Indian equity and currency markets are directly correlated to each other.

However, on the long term charts strong support for the Rupee is available in the 78-79 range. In case this support does not hold and the rupee slips below the 80 mark, expect the rupee to weaken towards 87 over time.


(Mazhar Mohammad is Founder and Chief Market Strategist at chartviewindia.in. Opinions are his)


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