Weekly Market Recap
Looks like a lot has happened this past week but the net weekly change was inconsequential in line with the previous week’s muted action. In the first half of the week, NIFTY rose significantly almost up to the previous all-time high, and in the second half it corrected sharply to give- up all its gain as a result closed flat.
In the week gone by the benchmark, SENSEX closed with a marginal gain of 78 points, or .13% at 62625, similarly, NIFTY gained merely 29 points, or .16% to close at 18563. BANKNIFTY also closed flat with a .12% gain.
Current Outlook
In the past three weeks, I have seen a succinct but incisive change in character in the market behavior from slightly bearish to bullish and it is obvious for any stock or indices to face some resistance in the vicinity of the previous all-time high. This is exactly what we have witnessed this week, NIFTY got reversed sharply in the last two days from the ultimate resistance level, see the chart below.
The waning upside momentum could be problematic though, but having some consolidation or side-ways move at the higher level is a healthy sign as NIFTY needs some fuel to cross above the previous high as this will act as a strong overhead resistance; especially when NIFTY has ostensibly gained two thousand points lopsidedly in an on-going rally.
Now the NIFTY is at a critical juncture; there are myriad possibilities, but I think the best-case scenario would be, whether the re-accumulation (re-fuelling) or distribution will take place. In an accumulation, we see sideways movement with a small pullback and the pace of the uptrend slows down considerably, once this process is over, we see a mark-up phase in which price move ostentatiously higher like we have been seeing in the past two months. While in distribution we see extra volatility with sharp moves and down with less change in price, once this process is over, we see a mark-down phase in which price corrects significantly. However, it is difficult to anticipate the durability of these two scenarios; it may take a few weeks to a few months.
Conclusion
It is prudent to be alert for a sharp correction among indices but at the same better to pay attention to groups of stocks that have been breaking out of the large consolidation where accumulation seems to be done and are nicely set up for the mark-up phase. Hence, stock selection and exit discipline are the keys.
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Be Patient; Be a Savvy Investor..!!
Pankaj