Weekly Market Recap
Last week, I pointed out that despite rising the prices, the market wobbled as the internal conditions were getting weaker, as a result, this week started off on a positive note but continued to drift lower since Tuesday. The first time, we have seen such a pullback since the rally began in March end.
In the week gone by the benchmark SENSEX corrected 298 points, or .48% to close at 61729, similarly, NIFTY fell 111 points, or .61% to settle at 18203. While bucked up the trend and gained half of a percent.
Current Outlook
This week the dominant feature on the chart is NIFTY making lower highs and lower lows. Since the bearish engulfing candle formed on Tuesday the NIFTY continued to drift lower unless it found some support at the 21-day EMA (purple line) on Friday as can be seen on the chart below. The liquidity problem, which I witnessed last week, remained inevitable as the market breadth continued to deteriorate throughout this week.
However, the NIFTY found support at the 21-day EMA which cannot be ignored, moreover, the inability of the VIX to rise during the pullback further strengthened the position of the bulls.
Now, we have to separate conditions, the participation is dropping off and Index seems to have found the support. Over the years, I have learned that the market will do pretty much what it damn well pleases, but this setup, virtually identical to 2021/22, is just impossible for us to ignore. In fact, this is a strong negative divergence from the price advance.
Conclusion
Most of the time, when these two plots disagree, the market breadth usually ends up being right about the direction of the market. That is an alarming insight right now, and it fits with the poor breadth numbers we are seeing.
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Be Patient; Be a Savvy Investor..!!
Pankaj