Weekly Market Recap
Finally, after four consecutive weekly gains minor pull back arrived this week, as I wrote, negative divergences emerged last week were clamouring note of caution and looks like this pull back came heralded by providing enough signal in advance. However, on Friday at one point of time it appeared that NIFTY is heading for deeper correction, but sharp recovery came in, in second half to impair the losses.
In the week gone by the benchmark SENSEX was marginally down by 130 points, or .25% to close at 52344. While NIFTY lost 116 points or .73% to settle at 15683 and BANKNIFTY continued to lead the decline with a loss of 1.4%.
Current Outlook
The strong uptrend which was quite intact until last week seems to have halted at least for a time being. Whether it is just a normal pause or a sign of reversal only time will tell, but few warning signals have emerged in past two weeks. Negative divergences are a strong hint that something untoward is probably about to happen. Most importantly, BANKNIFTY bucking the uptrend since last week enunciating a noxious and disconcerting picture for the overall market.
The technical configuration on long -term weekly chart of NIFTY is prognosticating a bit pernicious picture which doesn’t seem to be in favour of bulls anymore unless proven otherwise. As we can see in the weekly chart below, since the V-shaped recovery or rally started last year from the low of 8000, NIFTY has produced four major vertical advances including recent one (enunciated by blue line) with minor correction or pause (shaded portion). First time, in the weekly chart, the negative divergences among indicators in the below panel became the case as major indicators like RSI, ROC, CMF, MACD have formed lower highs and rolling downward, suggesting upside momentum beneath the surface has waned which is a major cause of concern for the bulls. If we see the monthly chart, the rally looks quite precipitous with no major support at nearby levels.
Presently, we are living in a time where liquidity is unprecedently high, central bankers across the globe have taken extreme measures to ease-off the liquidity into the financial market. Now, whose impact is quite apparent the CPI or retail inflation surged to 6.30 per cent in the month of May, over and above the Reserve Bank of India’s (RBI) threshold of 6 per cent.
Abstract from the news, “This is the first time in six months that the CPI data has come over the Reserve Bank of India’s (RBI) upper margin of 6 per cent. Prior to this, the CPI came below the 6 per cent mark for five consecutive months. The government has asked the central bank to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 2026.”
The growth in stock prices doesn’t necessarily transmit into the real growth of the business. Unequivocally, the tapering of liquidity by central bankers will start sooner or later, I think, it will be done sooner than later, provided the spike in retail inflation. Once that happen it would not be propitious for the stock prices; especially after having a big vertical gain.
Moreover, the VIX seems to have reached at lower levels which somehow confirm the cardinal top in the market. Hence, at the time of writing the outlook doesn’t seems to be lucrative for the stock prices rather caution is warranted.
Conclusion
Market may completely ignore my analysis and continue to rise, but I think whose probability is quite less. Even if, market start rising again, I think, the desideratum of a time is patience and perseverance.
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Be Patient…; Be a Savvy Investor..!!
Pankaj