Weekly Market Recap:
For the last year, the market has been advancing persistently, and in January the angle of ascent became ridiculously steep, and I commented more than twice in my last two blogs that it is difficult to sustain a vertical move of this kind as far as Indices is concerned, I also mentioned that this rally could be the final one before we see a significant pullback and recommended to have a light position with tight stop before -union budget, which might have triggered off in most of the stocks if not in all.
On Friday, there was a kind of crash going on in global markets, which emanated from all Asian countries. So all over Asia, there was a crisis. It spread to the world and, therefore, it was a combination of LTCG (long term capital gain tax introduced in union budget) along with global impact that was taking place.
BSE benchmark Sensex plunged 839.91 points, 02 2.34%, to 35066.75 on Friday, biggest one day fall in last two year. The Nifty declined 256.30 points, or 2.33% to 10760.6. The midcap and small cap indices fell over 4% for the day. IT and FMCG were standalone relative outperformer this week.
Current Outlook:
Now question arises, what next?? Is the correction adequate or inadequate..?? I think the answer is both, the stocks with over-leveraged position were punished harder and chart suggest that there is enough room or potential for them to correct further and, I found there are pocket of stocks which are still incessant, down only 1-3% (do your analysis) and held up well even this heavy sell-off, and suggest nice entry post correction.
For whatever reason the correction happened, whether due to global weakness or LTCG, I have to tell you that technically, this was very overdue selling and is most welcomed because once things settle down I am going to be looking at some high reward to risk trading candidates, especially if we are patient. Few that comes to my mind right away are companies that had very strong earnings, made a nice move higher and have since pulled back to level that could make it a great trading or investing candidate.
Going forward, I think market would be quite volatile “As in nature things move violently to their place and calmly in their place.” The long term trend is still up, so we must keep this week decline in perspective.
Hence I believe that sooner not later, the market should arrive at another low –risk entry point for those who like buying pullbacks.
Conclusion;
The main point I would like to make is that the character of the market changed last week. For more than a year a one or two day decline was considered as an opportunity to “buy the dip.” This week buyer appeared to be failed even after 7-10% decline. That doesn’t mean market character has changed from bullish to bearish, but at the very least it has changed from super bullish to normal bullish.
My expectation is that some over-leveraged stocks may continue to correct further in a zigzag manner not necessarily in straight line and few will tend to move higher in a similar manner.
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Enjoy the ride..!! Be a Savvy Investor..!!
Pankaj