Weekly Market Recap
Precisely in line with my expectation sharp pull-back came in just in time with enough warning signal. As if I have been writing in past two weeks and doubting the sustainability of the sharp vertical move which ideally resolves downward, this time is no different when major indices has corrected significantly from their highs and no sector could be spared off in this decline.
In the week gone by the benchmark SENSEX eroded 2592 points, or 5.30% the biggest fall in last 10 months to settle at 46285. Similarly, NIFTY shed 737 points, or 5.13% almost 1000 points from its high and closed at 13634. While BANKNIFTY performed relatively better which lost 1.93%.
Current Outlook
Since past two weeks, I had been talking about the possibility of forming a cardinal top by the market based on the warning signal (technically) bestowed by the market and now it’s looks like the warning was precise unlike unheralded and succinct most of the time. NIFTY fell all the trading sessions this week and closed at lowest point with no sign of relief. In fact, NIFTY has breached the 50-day (green line) moving average which is again a cause of concern and suggesting the correction might not have over yet. As we can see in the chart below the last time when NIFTY breached below it 50-day moving average in September 2020 it took support at 200- day (black line) moving average. This time 200-day is quite far at 11558 but we cannot completely rule out the possibility of happening this again as the downside momentum is quite strong now. Furthermore, the technical indicator which were more pronounced and accurate in indicating the downfall in past two weeks has enough room to correct further before they become oversold. Almost all the major sectors have fallen in tandem with each other be it technology, finance, auto, industrials, reality and defensive stocks like staples and FMCG.
In last penultimate week, I concluded that taking the current environment into consideration, 2021 could be a pestiferous year as volatility is making a base at a level which had been the higher reading in normal markets. Moreover, headwinds in economic data may cause a ruckus in the markets. Remaining defensive will be key as risk/reward is not favourable now. Keeping stops close and trading around positions will be central to being successful. Buy-and-hold passive investing will be challenged and investors should place more emphasis on protecting their portfolios.
I would further recommend that we shouldn’t promptly dive in for buying after a pull back as market always has a tendency to surprise when no body was expecting a V-shape recovery market did it and when almost all the so-called economic experts are expecting V-shape recovery in the economy, market may take a different route. Although, market may again take a sharp rebound from here but that looks difficult to me, rather outlook may turn gloomy in coming days.
Conclusion
Like I always said, this is a time when we should be extra careful and need to be more patient and disciplined. It has been found that in most of the cases the vertical moves which we have seen in last few months may tend to correct 100% or more. At this juncture, it is hard to expect the possible support area, but I think the market itself will provide the enough clue, hence we should wait patiently before rush to buy.
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Be Patient…; Be a Savvy Investor..!!
Pankaj