Weekly market Recap:
Last week I asserted that the character of market had changed from super bullish to normal bullish, by which I meant that we should start to see more normal bull market correction unlike earlier, market were surging in linear manner. Just like the previous week, sharp correction continued and the week gone by ended on a dismal note with the benchmark BSE Sensex ended with a net loss of 1060.99 points, or 3.03% at 34005.76. Similarly, NSE Nifty shaved off 305.65 points, or 2.84%, closed at 10454.95.
Earlier we also had the union budget and the introduction of LTCG to blame. But this time, it was purely a global technical sell off that caused a ruckus. FMCG, Metals and selected pharma stocks supported the market, while rests were falling.
Current Market Outlook:
The volatility index (VIX) rule the action all over the world, in our market which is whopping up 26.10% in a week, touched the level of 23.6 before it settled down at 19.23, last time we saw this level in November 2016. Last week we saw the Sensex moved more than 2000 points, (adding up and down movements) market opened gapped lower, and then the bulls had a turn to recover some losses.
What this tells me is that emotions are controlling the market. It’s a clear battle between two prominent drivers of the market i.e. greed and fear, with fear holding the upper hand as the market opens and subsequently buyer comes in at lower levels in the form of greed.
Most importantly, we have to keep in mind that we’re dealing with a market environment with a VIX reading at extremely high levels and we should respect it. This type of market doesn’t act rationally, wild swings can be expected to occur when we least expect, like correction was expected but happened unexpectedly.
Now, again I am back to the same question, what’s next? Whether the correction is adequate or inadequate..??. Well, I think the answer is still the same, both outcome exist. Let me clarify this with the chart of Nifty depicted below (click on the chart to zoom it), index has shaved off only the vertical move, about which I have written my cautious view in my past blogs. And after doing a comparative technical analysis of individual stocks along with Nifty, I have found that the stock with similar steepening angle of ascent, has corrected more than 5-10%, in line with or more than Nifty. However, fundamentally and technically sound stocks (do your analysis) which steadily move higher have not corrected more than 1-2%, in fact they have gained despite of the steep fall in the market.
Hence I would continue to hold on or will buy technically strong stocks, while planning to go short in pockets of stocks where the key price support has been lost.
Conclusion:
Although bear market starts with the rise in VIX, however, I would still consider that spike in VIX was long awaited event, to resolve over-extended market condition which will eventually makes the market healthier. I could be wrong about that, but what is important is that we should always be prepared to applying selling discipline (stop loss) to our analysis.
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Enjoy the bumpy ride..!! Be a Savvy Investor..!!
Pankaj