Is Nifty really Decoupling? If not, then what’s Holding up?

Like last 2 weeks, every short seller was confused what’s all happening to Nifty, why this is not falling? Even Put holder were scratching their head because expiry is near and they hit by huge erosion of premium in option prices. These days People using term “Decoupling” that means some asset from a group going against the trend.

 Decoupling: That means when two different asset classes that typically rise and fall together move in opposite directions, such as one increasing and the other decreasing, 90% of times Nifty follows trend of US market, but when there is some good news about Indian Economy or some Internal news then Nifty will start decoupling from Global Market, but only up to some extent, sooner or later it will follow Global Trend.

When a group of highly correlated investments or commodities stray from their correlative attributes, decoupling has taken place.

In the above chart, you can see there is Huge decoupling in between Nifty and other Global Giants. But what are the other factors which are holding up Nifty and which are the reason for Global Selloff?

We all know that Global Sell-off starts in September Last week, and I also alerted that about on 9th of September, Now there are some more reasons that putting selling pressure, especially on US Market.

A direct relation between below three things are the reason for Nifty to hold up to Higher levels, In longer time frame Everything is connected with each other, sometimes they react in a positive way, but sometimes some of the assets decouple from each other.

1. Crude & US Market
2. Crude & Rupee
3. Rupee & Nifty

Crude & US Market

If we are talking about large view then there is always the same trend of Market and Crude, Here trend means Marking Low and High on Long-term charts. Recently Crude down by 30% in the last 2 months and Crude is always an Economic Indicator for growth and with that US Market is also down.

The prevailing view among economists is that there is a strong relationship between the growth rate of the world and oil-price changes. The impact of world economic growth on oil price can be seen in the light of the oil market power. In fact, as World economic growth increases the demand for oil increases which pushes up oil prices. Oil prices then, tend to be volatile, at least partly due to variations in the business cycle.

In the last quarter of 1998, economic growth decreased and pushed down the demand for oil and therefore reduced oil price to 20$ per barrel (see the figure above). While the world economy continued its recovery in 2003 and through the year 2004 and 2005 with gross domestic product (GDP) growth rates increasing in many regions, the world oil market was characterized by strong oil demand growth and the oil price increased from 27 to 35$ the barrel.

In the first quarter of 2005, the oil price increased to $50 per barrel approximately $15 per barrel higher than in the first quarter of 2004, and remain above this level for the rest of 2005 and 2006. Leading up to 2008, a strong world economic growth driving growth in oil use, thus crude oil prices increased dramatically during 2007, with oil prices climbing from an average of nearly $55 per barrel in the first quarter of 2007 to over $95 per barrel in the last quarter of 2007.

Now Market analyst predicting Global Slowdown Because of Heavy fall in Crude and this thing is putting pressure on US Market, You can see in the below chart How Crude driving the Market Or How Market driving the crude. At-large period both are related to each other (Here while writing the statement I am not considering any other reason here like OPEC comments, Trump Comments).On Long time frame Crude, US Market, Indian Market follow the same trend but on a short time frame, there will be some decoupling because of Rupee.

Crude & Rupee

If we take out other reasons like Election result, GDP Number, Fiscal Deficit, RBI Policy, then there is near about the same trend of Crude & Rupee, and this will impact on our market.

If crude goes down then rupee will Appreciate and this is good for Indian Market and Just because of Appreciation of rupee, Our Market is holding up gains from last 2-3 weeks. These things will work when Crude and Rupee Increase/Increase in some limits If they go beyond some limits then there will be huge decoupling in Nifty & US Market.

Rupee & Nifty

There is always Inverse Relation in between Rupee & Nifty, whenever Nifty making High, Rupee will go down (in simple economics term it will appreciate).

See if We are talking about Short-term trend then Yes decoupling will be there many times, but overall in large time frame only 1% chance of decoupling.

This crude Rupee relationship can save our Nifty up to some extent only, But Crude is also an important asset for US Market, the main factor is how much crude is going up or down, that will define the trend, the carnage going on in the Global market will put selling pressure on Nifty. Nifty is near about good support of 10750, if it sustains below this mark then next level it will try touch is 10520.

For Nifty there are two things

1. Relation of Crude Rupee
2. US Market

Above points can put some heavy Impact on our market, these days Relation of Crude rupee saving us from a selloff, but US market is going through heavy selloff so now that will put pressure for sure. An asset can save us up to some extent if that is going beyond some limits then ready for some huge fluctuation. I am again sticking to my warning of “Third leg of selling” in Jan-march which I published in my last article. Market conditions: When to buy shares?

By tracking High and low of an asset in chart and comparing it with other asset, can show you good result, but how to track them and how to read them, that is very important in market, and If you want to learn that then there is an opportunity for you, I am starting my third Batch of Technical Analysis Classes From 19th Of January ( 4 Months course, 2 months of learning and rest 2 months of doubt sessions), Limited seats left now,  for More details you can check this link. Technical Analysis Series-3

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