Weekly Market Recap
NIFTY attempted to break-out above the one-month trading zone, but the breakout wasn’t invigorate enough to produce the rally of some magnitude that resulted into a sort of false breakout as we can see in the chart below. While technology stocks continued to rise to new highs this week to support the indices. However, NIFTY still closed very much in the vicinity of previous high which is at critical juncture.
In the week gone by the benchmark SENSEX surged 753 points, or 1.44% to close at 53140, similarly NIFTY gained 233 points, or 1.49% to settle at 15923.
Current Outlook
In spite of the market making new, all-time highs this week, participation continued to deteriorate as I have mentioned this in my last two blogs. Although, number of stocks making new high have outnumbered as compared to making new lows, still market breadth was not as strong as it used to be until last month. That means only mid- and small-cap stocks are doing well beneath the surface. Moreover, the largest component stocks are holding the index aloft. This week, it was entirely possible because of the technology stocks as they supported the indices effervescently. However, deteriorating breadth at the peak is one of the assertive signs to call for a correction. As I wrote last week, price action is leaving an impression to rise further, but subtlety of analysis is not supporting this idea until it is proven otherwise. Therefore, I think perhaps it is safe to say that the market is giving enough signal to book the profit or exit.
Furthermore, the VIX (volatility Index) is at the lower end of the range of the last ten years. It is a sign where market usually makes a cardinal top. Easy is not always good, though. It is quite useful information. It could be a sign of warning. The market can sometimes take a while before such warnings come around to finally matter, but they are worth paying attention to anyway. I am not prognosticating the immediate correction, but the given conditions are suggesting the outlook is barely optimistic and extremely cautious.
Conclusion
As the market has relentlessly moved to record highs, but the foundation has been steadily crumbling beneath it. This condition could be turned around with renewed buying interest, but at present the internals are very weak and getting worse gradually, though. Extreme caution is indicated. Hence, be patient.
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Keep Analysing…; Be a Savvy Investor..!!
Pankaj