Weekly Market Recap

It was truncated week as market had only three trading session, but to me a lot has happened, first NIFTY made a new all-time high at 11856 and then suddenly dropped to get back below the February 2018 high, however, on positive side closing was precisely at the same level of February 2018 high (see the weekly chart below). Since last two weeks I have been taking about possible formation of double top on NIFTY and I think based on this week action that formation seems to be intact.

In the volatile week gone by, the benchmark SENSEX added 373 points, or .96% to settle at 39140 and NIFTY gained 109 points, or .94% to close at 11752.

Current Outlook

As we can see the daily chart below the candle formed on Thursday seems to be negative in nature as the blend of last two candles formed a shooting star that combination rarely happens but once formed then it has a strong implication of reversal in uptrend, however, not guaranteed..!!. The recent rally was mostly driven by financials or banking stocks and the candle formed at the top on last session on BANKNIFTY is bearish engulfing  which also indicates reversal in uptrend, again not guaranteed but probability is high. In addition, technically, the strong upside action often lead to reaction in opposite direction not necessarily in equal magnitude, but opposite reaction may correct up to 15-20% of recent rally. Moreover, the technical indicators are also demonstrating the same picture as most of them are either showing the negative divergence or inverse divergence that means of loss of momentum which may lead to short-term correction.

In addition to that earning season has started, though, so far we haven’t seen any big positive or negative surprises, but no doubt Q4 earnings will set the impending direction of the market. Earnings coinciding with the political event has fuelled the VIX (Volatility Index) at highest level in last three years which may remain to be at elevated level unless election outcome doesn’t reveal. Hence, current outlook is quite volatile.

Conclusion

While NIFTY has moved to new, all-time highs, it is by no means a strong breakout at this point. Price action is reminiscent of the September 2018 price top — major daily changes and big daily ranges. Volatility is quite high. The market is at major overhead resistance, and this year’s advance needs to be corrected. I’m hearing people calling for a market ‘shoot- up,’ but I see the potential for a major double top. Not necessarily a ‘melt down,’ but certainly a pullback to set a less accelerated rising trend line.

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

Keep Analysing..!; Be a Savvy Investor..!!

Pankaj