Weekly Market Recap

This week, market started off with red sign on Monday, followed by nice rally on Tuesday that recouped not only the losses but convert them into descent gain; however, thereafter, market remained oscillated in a narrow range for rest of the week amid earning outcomes.

The benchmark Sensex ended the week with a gain of 376 points, or 1.05% and settled at 36386, similarly, Nifty closed at 10906 with a gain of 112 points, or 1.04%.

Current Outlook

Last week I wrote that past few weeks action by Nifty formed a pattern of symmetrical triangle and the cause of this type of formation was impending earning season. This week it seems that Nifty has given a break-out in an upward direction that indicates a rally of some magnitude can be expected at least up to 400 points equivalent to height of the triangle (refer my last blog), however, lack of follow through after the break-out is a cause of concern to me. Nifty stalled precisely beneath the red horizontal line that seems to be strong resistance in last few weeks as depicted in chart below.

In addition to that I also mentioned that in bull market, stocks tend to react positively after earnings and should ignore the bad results while remaining sluggish for a time being and vice-versa for the  bear market. This week I found the mixed reaction, stocks were being rewarded and punished after their respective earnings. Heavy weightage like Reliance and Infy reacted positively post results that supported the index Nifty, but, in spite of that Nifty couldn’t cross above the horizontal resistance as shown in chart. Again, a cause of concern.

As earnings season is getting forward we need to see how the remaining stocks would react, but we should keep in mind that on Friday when Reliance rallied more than 4% market breadth was quite weak that is not the sign of bull market. Like FAANG (facebook, amazon, apple, Netflix & google) stocks were dominating the US market; eventually they ended up with sharp fall losing more than 30-40% of their market cap in few days, similarly, only few heavy weightage stocks seems to be supporting the Index and ideally that should resolve in a downtrend or a side-ways movement for few more weeks or months. Lets hope for the latter.

Conclusion

As I neutralise my stance from being negative on the market in the backdrop of earnings (fundamentals) last week. Technically, Nifty has to cross above red line before I decide from being neutral to bullish again. Diminishing moment after triangle breakout is a concern but that won’t necessarily mean it cannot go further up. Resting before significant upside could be one the possibility. Moreover, it’s more like a stock specific market and entry point is not looking quite comforting. Hence, buying position should be be taken only on those stocks which has given a nice pullback after a good set of earnings to optimise your reward-risk ratio.

I welcome any feedback you may have about the content of this article.

Be patient..!; Be a Savvy Investor..!!

Pankaj