Weekly Market Recap
Last week, I wrote about the possibility of good warning sign demonstrated by the indicators (RSI and MACD) which I explained in brief that they were not moving further up in tandem with the price (NIFTY) and in most of the cases this configuration produces a minor or healthy correction. And, once again, at least we have seen a minor correction this week.
In the week gone by, the benchmark SENSEX lost 654 points, or 1.27%% to close at 50889, similarly, NIFTY was down by 181 points, or 1.20% and lost the 15K mark to close at 14981.
Current Outlook
The dominant feature on the chart continued to be the same as emerged last week, in fact it has enunciated a strong confirmation that correction may continue in coming week as the momentum gradually shifting downward along with both price and indicators are moving in same direction. The question arises whether the correction would be simple or complex. Based on this week correction pattern, I think the correction would be quite complex and it carries an important information what lies ahead. A “complex” structure is one that features chopping up and down with tantalising sharp up moves to create a buyer so that big investor or institutions can easily offload their shares at optimum higher level. Such a complex structure mostly developed after a strenuous up move like we have seen so far where shorts have been squeezed so badly and community of retail investors is hung ho about impending up move.
A “simple” structure, by contrast, involves no chopping up and down, just a downward move and not back again. A simple structure says that side is not in charge.
Moreover, the market breadth which has been so strong for quite long time appeared to have deteriorated this week that suggest bull might losing the grip at least for now. As in the market there is a constant battle between the bullish and bearish sides, and one side or the other can prevail at various times. Sometimes neither side is in charge, and that will show up as simple sideways market.
we could see the possibility of building a complex structure to go up, then the message would be that we were seeing strong initiation of a strong new up leg. Unless that happens, the message is that the bulls are giving up control, so the opportunity is there for the bears to attempt to take control. Whether the bears can do that is something which remains to be seen. Hence, we can say change of outlook is underway and we need to be cautious before rush in to buy in small corrections.
Conclusion
The bulls may mount a counterattack, but they are not likely to take charge sooner until there is a good consolidation occur to digest the lopsided vertical up move, meaning that the bears should be considered to be in charge. Hence, profit booking is important and patience is required to have a long position.
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Be Patient…; Be a Savvy Investor..!!
Pankaj