With really nothing to go by in terms of guiding lights, the chart is the next best thing to reading the collective mind of participants. Sure, there are many caveats to it, bottom-up being the most favorite one and the switch being sectors or cap sizes being others. But, for what it's worth, taking the Nifty as a comfort pillow, the journey through 2020 makes interesting reading.
After the all-time high at 12430 and the collapse to 7511 were done in the span of a quarter, the clawback to the recent high close of 11647 was on the back of a series of higher tops and higher bottoms. For the first time since the March lows, the Nifty has made a lower top and lower bottom and for it to coincide with a major global event, is important.
While there is no doubt that the run-up was on the back of flows, the justification was sought through a "perceived" pick-up in demand. Given that this demand was at least partly "pent-up", there were many in our market that put the stock price in the input column and imputed economic activity from it, cart before the horse.
Probably, 10500-10800 could have been the "fair value" for the market, but all the talk of "not as bad as we thought", driven by rural demand or restocking for the festive season or that "pent-up demand", drove the Nifty further up.
Given that this was liquidity-driven, the run-up to the US elections should see some pullback as the perception of volatility increases and a risk-off trade emerges. Just to negate the "lower top-lower bottom" formation, would require a close above 11650, a herculean task in today's environment. But, as is often said, the proof of the pudding is in the eating, and if in the quarters ahead, the demand projected as a return to "normal" isn't backed up with actual numbers as the macroeconomy reality bites, then the potential double whammy of lower earnings trajectory and lower multiples will kick in.
In short, having called for an intermediate top and a potential 10800 and possible 9700 as likely levels, I'm watching the random walk down the Dalal Street playout as the storyline of the last few months gets tested. Would keep 11460 as a stop for this call for now and hope markets don't find a second wind over to the SC for its verdict on banks.