Last week, we have seen the classic example of false breakout which was followed by sharp reversal; and the reversal continued into this week as well only to become more incisive. Bears that have unsurfaced themselves at higher levels extend their grip, as a result, NIFTY has once again fallen sharply into the one-year-long channel and continued to drift lower till the end.
In the week gone by the benchmark, SENSEX lost 741 points, or 1.26% to close at 58098, similarly, NIFTY shed 203 points or 1.16% settling at 17327. While BANKNIFTY which has been the leader for quite some time got reversed sharply and lost over 3%.
Current Outlook
Last week, the technical setup clearly enunciated that the problem is coming and I expected the price to decline this week given the previous week’s behavior. It is always hard to predict the extent of the decline, but recent price action suggests a weak opening next week. Provided the last one-year price behavior it is not uncommon for the NIFTY to rise and fall sharply from the lower to a higher level. So, it is quite likely NIFTY may fall till the lower end of the range somewhere around 15800 level. However, on the weekly chart much lower target is possible, but unless 15800 is held it is prudent to consider the same range-bound structure going forward.
The indicators in the lower panel of the chart have rolled back down after having a negative divergence last week (which I mentioned briefly in my previous blog). And, now they have enough room to fall before over-sold conditions developed. Moreover, the market breadth (the difference of advance and decline issues) until last penultimate week was showing some strength that has turned exceptionally weaker this week. The weak breadth reflects broad base selling which is quite disconcerting and pernicious in nature.
Conclusion
Although the vicissitude and upheaval are the salient features of the stock market, however, unless I get significant changes in the above-said conditions, I would keep my analysis simple and effective. That’s a reason I have been persistently using the last one-year chart in my analysis for quite some time, thus far, I haven’t seen any significant distinction except the sharp advance and decline. And the current action signals the latter.
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Be Patient; Be a Savvy Investor..!!
Pankaj