Monday, 3 September 2018

3 Top Reasons For Why We Can Expect A Big Market Crash Imminently

Posted by RaviKumar Nama
(Published on 04-Sep-2018)
The current Indian Markets reaching new heights every day, breaking the previous records. Now everyone is talking about Stock Market investments and the technical and fundamental analysis. Many experts are busy in calculating next level targets of Nifty/SENSEX and luring the small retail investors for Stock Market investments/trading. But, if you observe few things in the Market, you can predict the Market directions in the next couple of months. Taking the track records of Market crashes, there are 3 most important things to predict a Market crash. What are these 3 reasons? What is the next course-of-action considering these 3 reasons?


3 Reasons for Why We Can Expect A Big Market Crash Imminently

1. Nifty P/E Ratio:

Nifty PE ratio is important as it is a measure of valuation of all the companies included in Nifty. P/E ratio means that the amount an investor is willing to pay to earn one rupee as profit. For example, if PE ratio of a company is 25 it means that investors are willing to pay INR 25 for one rupee profit the company earns. The current Nifty P/E ratios is is 28.5 as on 31-Aug-2018, it means investors are willing to pay INR 28.5 for one rupee profit collectively earned by all the companies that are included in Nifty. See the below table for Nifty ranges and the corresponding remarks:


From long term perspective, low Nifty P/E ratio is considered cheap and ideal for going long. A high Nifty PE multiple on the other hand is assumed to be expensive and warrants caution while taking investment decisions (Booking profit or going short is a better strategy than going long in High PE ratio scenario).




Whether Sensex / Nifty are in bearish Zone or bullish Zone, the index is in Over-bought or Over-weight will be dependent on the value of P/E raio.
(Source: NiftyPE)
Currently the Nifty PE is at 28.55, it means that the current Market is in Very Expensive zone. So, anytime Nifty will be crashed to 30% to 50% of current Market levels. This is not at all good time to invest in stock market.

2. Technical Analysis:

Sensex has crossed 38000 mark and Nifty 11500 mark. If you see the Nifty yearly chart (attached the chart below), and based on the Fibonacci series, the current Nifty levels are already reached 100% level of Fibonacci and it is very difficult to reach next levels (127% and 161%)


(Source: iCharts)

3. Political Reasons:

Apart from the Nifty PE values and the Technical charts, the current Political scenarios at International level as well as National level is also showing Indication for an imminent Market crash. Countries like Venezuela, Turkey, Syria etc. are facing severe financial or currency issues which are not a good sign for the rest of the world. US-China trade war, Uncertainties in middle-east, Saudi - Qatar clashes, raising Dollar are also some other reasons indicating the Market crash in the near term. Coming to National level reasons, upcoming General elections, Raising Interest rates and Crude oil are the main reasons to look for considering the imminent Market crash.

Things To Do:

  1. Your best bet is to sell before the crash. It is the right time to offload your stocks and sit on cash rich. You will be getting the opportunity to buy at bottom levels. 
  2. If possible, put all your money into a Liquid Mutual fund and wait for the right opportunity to buy. 
  3. Gold is also a better hedging option to keep the money. But should not keep all your money in Gold, make 10% to 20% of your cash into the Gold and the remaining in diversified portfolios like Liquid MF, FDs, Debts etc. 
  4. However, for day-traders , there is no impact with the Market crash. Because they have both BUY as well as SELL opportunities in the Market. 
  5. For Swing or Positional traders, they should trade with strict SL. 

Disclaimer:

This data is for Academic purpose only. The data published on this post is just my opinion based on my own research and analysis and is provided as a general market commentary. As it does not take into account of your personal circumstances, please do not invest based solely on this information. By Viewing any material or using the information within this post you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general information provided here.

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