Market Recap:
It was solid gain for the market last week. Market started off by inching higher until mid of the week, eventually bulls took the charge and dissipated the bears after one day fall on Wednesday. Nifty made a life time high at 10192 before it closed down at 10167, which is highest closing ever since it had a failed break out on 19-Sep. Almost all the sectors in Nifty50 did well except capital goods. The rally was fuelled by above expectation IIP (Index of industrial production) data and below estimated inflation figure, released on Thursday. The IIP rose 4.3% in August hits a 9-month high, reversing a contraction in June and faster than a 0.9% rise in July, whereas inflation based on the consumer price index (CPI) was at 3.28% in September, unchanged from August.
Blue chip companies like TCS and Indusind bank posted better than expected earnings during the week, Reliance (RIL) posted its earning on Friday after market hours and is due to react on Monday.
Current Outlook:
Wide participation is a hallmark of a bull market rally, financials, which were relatively weak till last week also participated in this rally. Therefore, I am viewing the market quite bullish with what appeared to be a break out pattern in place, as it can be seen from below chart of Nifty50, Market is holding the break out zone with elevated volume as depicted by blue vertical rectangle on the chart, as this time, last two days volume was higher than the average volume since we saw a failed break out on 19-Sep, that too coincide with RSI at 64.46 less than 70, which negates the extremely over-bought and extended conditions, further, complacency in the form of a very low volatility Index (VIX) at 11.26, is a signal that market has the ability to overlook any bad or weak earnings reported by companies in on-going earning season, However, above expected earnings can further fuel the rally to sky-high and the price advance can becomes even more vertical before it gives up or consolidate. Once again I would like to mention that market has entered into the quarter period (Oct-Dec), historically, which has been the strongest for equities in last 20 years.
Conclusion:
Although, technically, market has enough room to move higher, but still market is always a quite sensitive and vulnerable for a pull back, so always keep a stop in place. As I have found there are good companies which are hovering at their support zone post correction and not started to move higher yet, perhaps waiting for earnings. Hence, I would advice to pick up the stocks which has high risk-reward ratio.
Enjoy the rally!
Happy & Prosperous Diwali…. Be a savvy investor!!
Pankaj