Charts shows ratio of Indian Index(Nifty)/Chinese Index(Shangai Composite).Though it is not a good trading indicator its worth watchable .I like to interpret this ratio to compare two global peers. I mean not only to compare the peers but to compute the fair value of Index from other Index. You may ask How it is possible.?
From the ratio we could understood that declining ratio(-ve trend ) shows that chinese markets are most favored for buying than selling. i.e Chinese stock markets are more favored for buying when compare to its peer India.
Similary rising ratio (+ve trend) shows that indian markets are most favored for buying than selling… i.e Indian stock markets are more
preferred for buying when compared to its peer China
By goinng the way we found that If the ratio dips below 200 day MA then chinese markets are most favored in long term when compared to India. And if the ratio peeps above 200 day MA Indian Stock Markets are most favored in long term.
And Currently the ratio dips below 200 day MA shows increased buying intrest in chinese when compared to Indian markets.
And the current ratio is near 1.29. And currently China is trading near 2260 and Nifty near 2925. i.e india is trading 1.29 times
the chinese market. And the declining ratios's shows that 1.2 or 1.1 could be possible in near term.
What happens if the Index ratio 1.1 or 1.2 achives in near term?
In my earlier post i mentioned that chinese Weekly RSI-2(98.37) and CCI(>100) is currently at over Bought levels. Means in near term
chinese markets could be in range bound between 2000-2300 for quite some time. Assume that if chinese markets are trading near
2100 with index ratio at 1.2 after one or two week later. Then fair value of Nifty = 1.2 * 2000 = 2400 and if chinese markets are trading near 2300 with index ratio left unchanged ie, at 1.3 then fair value of nifty = 1.3 * 2300 = 2990. i.e nifty range is now between 2400-2900 in short term. Which shows upside for Nifty is clearly capped for quit some time if chinese markets trade near 2300.Also do
remember any declining in index ratio will defenitely affect the performance of index.