Are we in a bull market already?

It’s a sort of a question that must be on everyone’s mind since the day corporate taxes were cut and the massive move in the broad market was seen. There are varied, opposing & contradictory opinions on the state of the economy and the state of the markets. We would like to go beyond having just a view or opinion and look at the facts & data before jumping to a conclusion. We would be leaving out economy indicators because they would anyway lag the markets, and look at only what the stock markets say. Because, as they say, the news is always the worst when the markets rise from the bottom.

Index Checks:

NSE Nifty 50:

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What happened here? As noted previously here, Nifty did form a bulling flag and slipped dangerously below that on a spate of bad news. But, it did form a quick reversal, and now it trades almost near the euphoric highs of corporate tax cuts announcements. Both the long term (blue line) and near term (orange line) moving average lines have also turned upwards with the near term average above the long term average.

NSE Midcap 100:

Here, the post tax cuts, early October fall took it far near the Jul-Aug bottom and the recent upturn has not made it come to anywhere near the tax cut high levels. More than that, the Mid cap stocks has seen buying only in the last two days (17-18 Oct), while the Nifty buying started from Monday and sustained the entire week. Both the long and short-term moving averages are declining as well here. So, things look a lot bleaker if one looks at the state of the Mid Cap index and the broader market of stocks, beyond the favoured large cap stocks in the Nifty.

Institutional Buying Behaviour:

Green arrows – Late day buying; Red arrow – Early day selling

This is an intraday chart which shows Nifty moves during the day. During the past one week, we have seen morning falls followed by big institutional buying by close. This buying has also followed through – meaning it has come on 4 days after every dip in the markets. Why is this institutional buying? Let’s look at the net buying amount reported to the exchanges by both DIIs and FIIs.

Courtesy: StockEdge App

In late Sep and early Oct, FIIs were selling while DIIs were buying. But in the last one week, both FIIs and DIIs have been buying in big amounts everyday. From this, we can conclude that on an overall basis, institutional interest is turning strong right now.

Advance-Decline of the broader market:

The advance-decline line works like this – You start with a fixed number. Onto that, you add a number everyday cumulatively. That number is the difference between the number of stocks rising on that particular day vs the number of stocks declining. When all these numbers of each day are plotted as a line, it looks like this:

Chart Courtesy: Trader’s Cockpit

While the Nifty has been oscillating (up-down) throughout the year, the Advance-Decline line has clearly been on a single downward trend. This clearly shows that the broader market has been in a bear market, beyond the select group of stocks in Nifty.

But, in the first half of 2019, the Nifty was rising/flat, with the advance-decline falling, no matter what. But it stopped falling sometime in August and was mirroring the Nifty move somewhat. But it stopped being doing that and again became divergent again in Oct. Generally, the advance decline line and the indices move in opposite directions near market bottoms because smart money moves into safer, quality large-cap index stocks (and that effect has been accentuated post tax-cuts because most small/mid caps would not get the tax benefit while good profitable large caps will).

Benchmarking with Global Indices:

Blue line – MSCI World Index ; Yellow Line – MSCI Emerging Markets Index; Green/Red Candles – NSE Nifty 50

Nifty 50 has always been playing catch-up with global indices throughout 2019. Except a couple of periods of divergences – May election results and Sep corporate tax cuts. Some global overhangs like UK-EU Brexit Deal and US-China Trade Deals seem to have moved towards near final stages of solution during the past one week, causing Indian markets to move correlated with Global Indices.


It would be fair to assume that we not in a runaway broad bull market yet. We would rather be right now very close to the bottom (pre or post the bottom) right now. Any money invested right now in stocks with great earnings visibility will have a low chance of wealth destruction. We have 90% allocation in long equities and have zero shorts on our own capital.

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