Weekly Market Recap
Based on last week market action and bearish engulfing candle formation on the weekly chart I expected a reversal in the NIFTY as the same kind of bearish pattern in the past (blue arrows) has consistently ended up with the sharp correction or pull back as depicted in the chart below. This week started off with weakness and correction intensified during the middle of the week, however, buyer emerged aggressively at lower levels and managed to close the index in the green.
In the week gone by the benchmark SENSEX gained 497 points, or 1.30% to close at 38854, similarly, NIFTY climbed 130 points, or 1.15% to settle at 11464. While BANKNIFTY remained in red with a loss of 2.31%.
Current Outlook
I mentioned in one my last note that Reliance has entered into a phase where no upside target is difficult to achieve and it looks like after few weeks of consolidation rally came in just in time to rescue the NIFTY from the severe downfall mostly occurred due to financials. So far, Reliance alone has contributed more than 1100 in NIFTY since it rallied from the March low of 900. It has gained remarkably 157% from its low. While, on the other hand financials are ostensibly the weakness of the market, provided their higher weightage they are weighing down the indices. In the current matrix, both NIFTY and SENSEX cannot soar to new highs unless financial partake in the rally. There are myriad of possibilities like banking may again turn up that can further fuel the rally or Reliance and IT may correct whose impact shall be more pronounced on NIFTY if that happens.
Technically, the dominant feature on the weekly chart is bearish unless NIFTY manage to close above the previous week high. Though indices covered from their lows this week, but market breadth remained weak. This reminiscent the pre-correction period when breadth was persistently weak through-out the year 2019 while indices was going up that concluded with cascading fall. In addition, more than above average movement on the indices closer to the previous peak is not a good sign that usually indicates distribution at the peak. Like, I said above there are my many possibilities, individual stocks in other area of the market is doing quite well and may continue to do so going forward. Hence, it is axiomatic to consider that outlook for indices is bifurcated along with group of weak and strong stocks.
Conclusion
The bulk of evidence suggests that further corrective activity lies ahead. That could either take the form of downside or range-bound activity. While, on other side few of the large-cap and mid-cap stocks is demonstrating a sign of strength. Indeed, some of them are quite positive. It could change the sentiment of overall market. Hence, we should prepare for both the side of the market or can wait patiently unless strong sign of either side emerged.
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Be patient…; Be a Savvy Investor..!!
Pankaj