Weekly Market Recap
In yet another strong week, indices continued to move higher and signal the end of the correction period or a cyclical bear market that started in October last year from its peak. I think the gain occurred preceding the news of a slight easing of inflation, and with this gain, NIFTY has reached the top of the channel as can be seen in the chart below.
In the week gone by the benchmark, SENSEX climbed 1074 points, or 1.84% to 59462, similarly, NIFTY gained 300 points, or 1.73% to reach 17698. While BANKNIFTY outpaces other indices with a gain of 3%.
Current Outlook
Foremost, as for the NIFTY having its bear market label to be removed, it must break above the channel. However, on the back of lower inflation data released on Friday and having boisterous upside momentum, it is quite likely NIFTY may pursue the bullish path. I have been bullish on the market for the past few weeks and expected NIFTY to reach the top end of the range, as I had mentioned about the concept of selling absorption at a lower level and stock prices have gained significantly since then.
Since the initial rally off the March 2020 low, it has not been uncommon for the stock prices to gain effervescently and left us all surprised, keeping that in mind and the current inexorable upside momentum it is likely NIFTY may surpass its previous peak. However, from here on, I will treat the current market uptrend with a touch of caution. As it is quite apparent in the chart that in last two years vertical gains have ended noxiously. Moreover, the prominent indicators in the lower panel have retained their higher readings suggesting a pause or minor pullback in the near term, while an overbought condition is in some ways a bullish indication as stocks only become overbought in the bullish phase, but it also tends to be negative in short-term as it suggests that price has gone too high too quickly and that condition should be resolved to have the sustainable rally.
Moreover, most of the recent gains in the market have occurred due to rallies in beaten-down companies that have reported mostly tepid earnings reports. With over 90% of NIFTY 50 stocks having released 2nd quarter results, it will be left to economic data alone to propel the markets higher. Any considerable headwind in the economy or inflation could easily stall the current rally.
Conclusion
The current rally is quite impressive and leaves us the impression that the price may reach a new high, but I am seeing compelling evidence that suggests we should wait patiently for a decent entry.
Feedback, comments, suggestion, or questions are welcome in the below comment section or at [email protected].
Be Patient; Be a Savvy Investor..!!
Pankaj