Rare indicator hinting that a mega bull cycle is on the anvil

NEW DELHI: In the past two decades, this has been only the third time that the broader NSE500 index has managed to post positive monthly closes for 75 per cent of the time in the trailing 12 months. ICICI Direct said this is a rare bullish crossover and that a reading above 75 unfolds into a multi-year bull market.

"In the previous two instances of 2003 and 2014, an indicator reading above 75 was followed by multi-year bull run," it said, adding that post crossover this time, ICICI's in-house indicator continues to sustain, exhibiting strength, and supports its structural bullish stance.

Also in the three mega bull cycles in the last two decades, each one was preceded by a minimum 40 per cent correction and transitory breach of the long term 200-week moving average, similar to 2020.

"Subsequent mega bull markets extended for minimum 43 months wherein the index gained minimum two times after resolving out of the previous high, thereby creating massive opportunity for investors with long term mindset. As per Dow theory, when the previous high is taken out, new major trend emerges. Taking cognizance of history, we expect the ongoing bull cycle from CY20 high of 12,400 to continue over the next few years with a potential Nifty50 target of 24,800 by CY24," ICICI Direct said.

The brokerage said the secondary correction is a common phenomenon in a secular bull market and that the average transitory correction in the last two decades has been to the tune of 14 per cent. "Investing in such corrections and ignoring noise has been rewarding," it said.

ICICI Direct said as a 11 per cent correction in Nifty50 is behind us, investors should focus on building a quality portfolio in a staggered manner from medium to long-term perspective.

Since April 2020, the magnitude of each rally has been at least 30 per cent. In the current scenario, 30 per cent of the rally from the December low of 16,410 will mature at 21,300.

Lastly, contrary to the perceived wisdom, empirical evidence suggests S&P500 has rallied despite Fed rate hikes in the last three cycles and that Indian markets have performed in tandem with US stocks, ICICI Direct said.