Weekly Market Recap
It’s been an almost inconsequential week for the market especially for the major indices with an alternate days of gain and loss. Although, the upside downside movement was quite fickle as NIFTY kept reversing frivolously from the lows and highs of the range, but the final closing was almost flat. In contrast, financials continued to slide in third straight week as a result BANKNIFTY lost 2%.
This week, the benchmark SENSEX closed down absolutely flat with a loss of 8 points, or .02% at 38845 and NIFTY closed up with a succinct gain of 40 points, or .35% at 11504.
Current Outlook
Since past two weeks I have been talking about the bearish engulfing candle formed on weekly chart, not only that I have alluded how consistent that formation has been in suggesting the pull back (see chart below). Almost every five times in the past five years that kind of bearish formation acted as a cardinal top followed by sharp correction in followed weeks, only this time the pull back is not being followed so far, in fact NIFTY has recovered half of its losses. I am still expecting the top of that candle will act as a strong resistance and the selling pressure may exert the NIFTY downward unless it closed above that level. Moreover, the upside momentum is gradually fading away under the vicinity of previous high that also suggest at least some sort of pull back is quite possible. Financial stocks may make it happen as they are apparently the weakness of the market. They are not only losing the upside momentum but gaining the downward momentum at the same time.
In addition, it is indispensable to take into consideration that the VIX (volatility Index) which mostly used to hover between 11 to 18 in normal market conditions, ignoring the exceptional events with sharp temporary pullbacks, I am talking about period from 2013 to mid-2019. At the time of unprecedented cascading fall in March the VIX shoot up to the 90 level, and now its back to 20 along with indices recouped its most of the losses. NIFTY is taking resistance below its precious high and VIX taking support at previous high (resistance) that combination is disconcerting and noxious for the buyers.
However, technology is clear cut the winner and bucking the downtrend, but negative divergence among prominent indicators are creating a problem and which can be pernicious going forward. I am still scouting and open for other possible outcomes, but this is one of those which I am accentuating at present. Hence, outlook is not propitious based on above discussed scenario.
Conclusion
“It is not what you don’t know that gets you in trouble. It’s what you know for sure that is not so.” This I read somewhere, and I thought perfectly suited when it comes to investing or trading. There are myriad of possibilities, but only three outcomes: up, down and sideways. Though sharp pull back mostly comes unheralded, still we can take measures not to put ourselves in trouble. Be ready with selling discipline if required.
I welcome any feedback or suggestion you may have about the content of this article.
Be Patient.!; Be a Savvy Investor..!!
Pankaj