Weekly Market Recap
Finally, the sharp rebound or the relief rally came in after the cascading and persistent fall. The rebound was quite solid which might have forced the short sellers to recover their positions as quickly as they took which has resulted in a solid weekly gain.
In the week gone by the benchmark, SENSEX closed higher by 1216 points or 2.24% at 55550, similarly, NIFTY gained 385 points, or 2.37% to close at 16630. While BANKNIFTY rebounded sharply from its Monday’s low but closed almost flat with a gain of less than half of the percent.
Current Outlook
The high volatility and the big swings back and forth are the dominant features of the current market that is the characteristics of the bear market. There is the possibility, though, that we are seeing a case of too much of a bad thing, which could turn into a good thing. As the recent rebound or relief rally came just in time when the indicators in the below panel reached the lower level which was the case for over-sold conditions.
The chart below is showing us a pretty good example of rebound after an oversold condition. But there is more to the story it tells us. The characteristics of our current market environment and that of the 2008-2009 cyclical bear market are appearing remarkably similar to me — almost eerily similar. I believe studying this period would do all of us a lot of good right now. The first step is a type of warning shot or a “sign of trouble”. That leads first to a rebound, then to a more permanent exhaustion event some months or weeks later, which finishes the corrective period. The recent dip and current rebound arguably fit into that “sign of trouble” category. If my hypothesis is correct about the rebound after being a “sign of trouble”, and if there is another bout of weakness yet to come, then this downtrend is not yet over. That is a point for the really long-term buy-and-hold crowd to focus on. Whether they should remain invested or exit at the optimum level it’s up to them. Traders can take note of this oversold condition, as, even it if is just a “sign of trouble”, it can still lead to an impressive bounce before the real trouble comes in.
Last week, I wrote about the green shot; if NIFTY gets back above the blue horizontal line, we may expect the correction might be over at least in the short-term, however, it rather seeing a stiff resistance at that level which still favor the bears. Hence, the outlook seems to be gloomy.
Conclusion
I could be completely wrong. Maybe we never get below the recent low. Or maybe we don’t stop there. But my analysis, along with history, suggests that it’s prudent to consider much of the above as the “most likely” path of the stock market, but NOT the guaranteed path.
Feedback, comments, suggestion, or questions are welcome in the below comment section or at pankaj@savvycapital.co.in.
Be Patient; Be a Savvy Investor..!!
Pankaj