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India About To Flash A Huge BUY Signal, Watch Crude’s Recovery For A Confirmation

by Taki Tsaklanos
January 21, 2016
in Breakout / Breakdown
0
India About To Flash A Huge BUY Signal, Watch Crude’s Recovery For A Confirmation
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We have repeatedly said that India should be high on your watchlist in 2016. Well, we have news for our readers: India has entered the buy zone. Which indicators are we watching for a final confirmation before entering a position in India’s index?

Befor answering that last question, let’s take a look at India’s chart. The Nifty 50 Index is very close to test its long term trend line. Percentage-wise, we are about 1.5% from huge support. This is obviously an area with the highest profit potential, provided that support holds. We also see on the chart that the Nifty 50 Index has broken through its long term trend since last summer, the 90 week moving average we watch. This formation looks very similar to the breakdown in 2011/2012.

India_January_2016

As said before, India has the highest potential among emerging markets, given the combination of very high real GDP growth (+7% last year) and excellent chart setup.

The first indicator we are watching before entering a long position in India is the Emerging Markets Index, represented by the EEM. As its chart shows, it has broken down recently through a secular trend line. This is definitely NOT constructive, and ‘in normal circumstances’ we would  think this is a huge bear market unfolding. However, we have doubts that this is a legitimate breakdown. Our belief is that this breakdown is false, as explained below. As long as EEM does not recover, however, this remains a breakdown, and we do not engage in any position in emerging markets.

Emering_markets_January_2016

The reason why we believe that the breakdown in EEM could be ‘false’ is that it is largely driven by crude’s crash, which, obviously, is ‘irrational’ (read: exaggerated). We have illustrated before that THE driver of falling stock markets is crude oil, as the correlation between the S&P 500 and crude oil is particularly high as soon as crude falls +10% in two weeks time. Now the correlation between crude and emerging markets is much more outspoken, and only limited to periods in which crude is heavily sold. As the next chart shows, crude and emerging markets are highly correlated.

Emering_markets_vs_crude_oil_January_2016

We explained that crude oil is as oversold as it can be. From a secular perspective, all indicators are in extreme territory, suggesting crude’s crash is stopping right here right now. If that holds true, then emerging markets will stop their decline, and India is the market with the lowest risk highest reward setup.

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Taki Tsaklanos

Taki Tsaklanos

Taki has +15 years of experience in global markets. His methodology is unique and effective, yet easy to understand; it is based on chart analysis combined with intermarket / fundamental / sentiment analysis. His work appeared on major financial outlets like FinancialSense, MarketWatch, ... Email: taki.tsaklanos@gmail.com. Twitter: twitter.com/investinghaven

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