Weekly Market Recap:
It was truncated week yet choppy and wild; but price stayed within a somewhat ragged range. However, price remained below the 50SMA (50 day simple moving average), and every day volume was a bit above the one-year average of volume and it looks to me like a bearish formation.
Squaring off of trading positions on expiry of March F&O series pushed the market higher and that gain helped the Sensex end four-week losing streak by adding 372.14 points, or 1.14% to settle at 32969. The NSE barometer Nifty advanced 115.65 points, or 1.16% for the week to close at 10113.7.
Out of 12 sectors in Nifty camp, not other sector have shown sign of strength except technology as it remained relatively stronger since downfall begun.
Current Outlook and Situational Awareness:
The winds are shifting in financial markets. Along with 50 SMA, one-year long rising trend line seems to have broken (depicted in chart below). Both Gold and Crude oil have reached to the resistance level or highest level for last 3 years. If mark up is directly ahead for Crude oil and Gold, Does this indicate a shift, or rotation toward inflation benefitting investments? Because crude oil and energy are a cost component of virtually every business and may put rising pressure on the price of most goods; especially for India, as we are a big importer that will impact our fiscal deficit severely and that might have bearish implication for Indian equity market in a coming days.
The idea of rotation is that investment flows out of one theme and into another. It is very easy in hindsight to identify which was the final bottom or top before moving up or down. It is very difficult in real time. With hindsight we can find many “signals” that would have given us early warning signals that we “should” have seen and the “could have” helped. It is also very easy to find signals or methods that didn’t work. It happens, we all know that.
Situation awareness and putting things into right perspective is very much needed, especially when you are a professional fund manager, as it is the return of the portfolio that counts and not the incidental result of the market or individual stock. The study of RR (Relative Rotation) provides me with “situation awareness” which is essential to survive on the battlefield. Take a look at the big picture, think about asset allocation, for the equity apart at least be aware of how the various sectors are doing, and adjust over time while trying to stay ahead of the curve.
Conclusion:
It is difficult to conclude that bear market has started. Nevertheless, I hope above backward-looking analysis has provided presumptive contour of the forthcoming markets. At the same time, it is always important to be aware of the strength and weakness of the various sectors and don’t try to be apocalyptic as there is a big risk of drawing the wrong conclusion regarding direction of the markets. Be patient as it is “better to be late and great, rather on time and in crisis.”
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Plan your trade; trade your plan..!!, Be a savvy Invesor..!!
Pankaj