Weekly Market Recap

A few weeks ago, when the market began challenging the 2018 price highs, I pointed out that there was a potential for a double top. This week, double top on NIFTY and SENSEX seems to have confirmed after falling sharply from the overhead resistance.

In the week gone by, the benchmark SENSEX was down by 1500 points or 3.85% to settle at 37462 and NIFTY lost 433 points, or 3.70% to close at 11278.

 Current Outlook

Last week, I wrote that all-time highs on indices are not supported by internals and we have seen the outcome this week. So far I have not taken into consideration any kind of impending election outcome in my analysis as it is a big macro event and no doubt that will have substantial impact on the market which can drive the stock prices in either direction in a big way, but my model and analysis doesn’t allow me to anticipate anything based on such big events. I have been writing about possible double top formation purely based on market internals or technicals that now suggest me, a second top has clearly formed, and the potential for more downside must be considered.

The double top confirmation line is drawn across the low between the two tops, as can be seen in the chart below. Once, the double top pattern ‘execute’ we can infer another leg down of equal or greater magnitude. The potential for a continued decline from current levels is of more immediate interest. Although, election outcome may drive the prices in either substantially, however, based on technical analysis, I think the upside shall be limited and temporarily, whereas, mixed outcome would be quite devastating that could virulently drag down the prices at the 2014 level. Hence, outlook is to be alert.

Conclusion

The developed double top structure is the most pressing technical issue, and on the weekly chart both price and indicators allow plenty of room for things to go wrong. Based upon the VIX structure, we were certainly entitled to bounce off, but probability is quite less. Hence, one should certainly be prepared with selling discipline if you are a buyer in this market.

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

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

Pankaj