Nifty 500 & BSE Allcap Index–Breakout or a Pause ?

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The Market Now

The bounce from March end has been very broad based.
Nifty is up 10-12% but Midcap and Smallcap Indices are up 15-20% from the lows. Stocks have done much better.
Heavyweights like Reliance, HDFC Twins, Infosys, TCS, Kotak Bank etc continue to lag behind and not near all time highs.
From Fear in March end to FOMO in June.
But the fact remains that from end of 2021 to now in June 2023 the Index returns are flat.
18 months of zero returns and still one gets a feeling that Markets have over run !!
This is due to the drawdowns phase all of us saw in 2018. Article in December 2017
Although the Index has been sideways to drifting lower from 2021-2023 there
have been number of opportunities.
In this sideways period we could repeat the outperformance of 2016. Up
50-70% against a Flat Index in this timeframe. Check Performance
Update in last post.
Luckily we could capitalize on the March dip – Check this message sent to Technical Traders Club subscribers on March 27th
The bounce has been super but what next – Pause or Breakout ?

Lets look at two broadbased indices.

BSE ALLCAP

Includes almost 1200 stocks.
Almost total market cap of India.
What is interesting in the chart below is in 2018 to 2020 move of Heavyweights this did not make a new high and kept knocking at same resistance.
The data is only from 2015 on this but it reminds of the breakout move in 2021!
Will this breakout or take a pause given the recent rally.
Overall looks very positive for the long term.

Nifty 500

The chart structure reminds of the 2017 rally. Almost similar timeline.
Wrote about it in detail Nov 2021 – Back to 2015
Have covered this in detail in this video – How to Strategize across Market Cycles
If one were to keep a pure technical view without any bias or understanding of the world the chart looks very positive which can eventually breakout right away or after a Pause.
A pause implies not more than a 5-8% of a correction with some time spent.

Conclusion

There were opportunities to make a super return in 2021-2023 sideways period and now the Indices are making new highs this would imply opportunities but outperformance may not be as great.
Technically the Indices look setting up for a Breakout. Could be sooner or after a pause.
Given the sharp move in last 2 months it does make sense for the markets to pause but should you be trying to time that pause by trying to Sell some or be ready to capitalize with fresh cash in a Pause.
Over the last 12-18 months one would have done better by capitalizing on Sectoral Opportunities instead of trying to time every dip.
Capital Goods and Manufacturing have been on a run irrespective of Indices. Banks gave a solid opportunity in June 2022. ( Remember our Bank report). Russia-Ukraine gave an opportunity in March 22 and now a broad opportunity in March 23.
Only thing to take care is if one is Over-Leveraged ( Lots of FnO). Be tighter with your stop.
Personally I want a Pause but Markets have a mind of their own. But not looking to time the Dip/Pause and focus on the longer term structure. Would continue to focus on Sectoral/Stock Specific Opportunities.

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