Weekly Market Recap
It was quite a volatile week where indices mostly have a positive opening but couldn’t sustain till the end of the day and continued to slide until the last day of the week. It was the fifth consecutive down week on NIFTY since the third phase of correction began from the vicinity of an all-time high.
In the week gone by the benchmark, SENSEX slid a whopping 2041 points or 3.72% to 52793. Similarly, NIFTY tumbled 629 points, or 3.83% to settle at 15782. While BANKNIFTY fell 4.25% on the back of more weakness among financials.
Current Outlook
Two months ago, when I was discussing a drop in prices, folks thought I was being too bearish. And, we have seen a torrential fall in the market.
Anyways, the technical configuration on the NIFTY is a declining channel that is slightly tilted downward but has a wide range and the second-time price has penetrated below the channel, making a case of possible double-bottom formation. Last time also when the price sharply fell below the channel it bounced back effervescently, and eventually rallied up to the top of the channel. In line with the previous pattern, the price fell precisely in the same fashion this time. When prices go down, people turn more bearish. It is a natural human phenomenon, and it is still working during the current price decline. The useful aspect of this is that, when you see an extreme reading for a sentiment indicator, it is a sign that a bottom is at hand for prices. An extreme negative reading has been reached among the indicators in the below panel that implies the price may bounce to some extent from the current level but seems less likely to rally up to the top of the channel.
In other words, the current sentiment condition in these indicators is in the same range as what was seen at some really meaningful price bottoms. However, a sentiment reading is a condition, and not a “signal”, and the one thing such a reading will not tell you is when it is going to finally matter. They all usually do, eventually, but it can be frustrating to wait for that moment to appear.
In contrast, on the weekly chart, the indicators have enough room to fall further before we may call the oversold condition. In fact, with the rise in downside momentum, conditions appear to be more deteriorating and disconcerting for bulls. And the VIX may go up to 30 levels, now at 23.49 which is alarming. Hope I’m wrong, but the weekly configuration is negative and falling. This is the signal that the bottom is not close. Time to watch for a reversal on the weekly chart.
Conclusion
The long-term market trend is DOWN and the short-term condition is OVERSOLD. Participation across nearly all the market and sector indexes I follow is solidly bearish. These short-term indicators are quite oversold, and we could get a bounce out of that condition; however, we think we’re headed for conditions that look more like what we saw at the 2020 bottom. Next week’s action will be enormously informative in this regard. Hence, be patient.
Feedback, comments, suggestion, or questions are welcome in the below comment section or at [email protected].
Be Patient; Be a Savvy Investor..!!
Pankaj