Weekly Market Recap
Last week, I mentioned the market closed on a positive note and the technical picture appeared better unlike the past few weeks; consequently, we saw a decisive breakout and a strong follow through this week. Although, there was a sharp setback on Thursday when NIFTY gave up half of its weekly gain, however, still managed to finish the week with a decent gain.
In the week gone by the benchmark, SENSEX surged whopping 1490 points or 2.56% to 59744, similarly, NIFTY gained 458 points, or 2.64% to reach 17812. While BANKNIFTY zoomed over 6% and posted the best weekly gain in the last six months.
Current Outlook
In my last two blogs, I wrote about the shakeout, as enunciated on the chart below, we have witnessed two shakeouts below the falling channel since the downfall started in October. Post-shakeout price tends to rise sharply. The deeper the shakeout the steeper the rise. In the last penultimate week, we saw a deep shakeout when NIFTY fell to 16400 sharply below the channel; subsequently, we have witnessed the decisive breakout. The shakeout is basically the change of hands from weak to strong though it could be temporary, the idea is smart investors intend to sell at an optimum higher level, hence they stopped selling when the price fell below their target or expected level. This happens when smart money has a dominant position in the stocks, I believe they have. Hence, the steep rallies from lower levels will keep coming unless they offload their major holding at higher levels. We can only understand this concept when seeing it with clairvoyance.
Currently, the dominant feature on the chart is the decisive breakout, strong follow-through, and a pause, as we can see in the chart below. Last week, NIFTY closed precisely at the top of the falling channel that could have acted as a stiff resistance like in the past, however, NIFTY has smoothly broken out above that level and its 50-day SMA (green line). Even on Thursday when a sharp pullback occurred NIFTY managed to stay above 50-day SMA which is bullish in nature. I think Thursday low should act as good support at least in the short term.
In addition, I have noticed a significant vicissitude among the sectors. The financials which have been the laggard or weighing down the indices until last week have vivified and turned around ostentatiously. While technology stocks pulled back and remained under pressure throughout the week. Provided financials have more weightage than technology that can lead the indices higher.
In short, if NIFTY stays above Thursday’s low the picture is bullish and the price may continue to go higher to some magnitude. Failing to do so may raise a question on sustainability and become a case of false breakout which is pernicious in nature. Hence, the outlook is cautiously optimistic.
Conclusion
In the short term, the configuration is bullish. There is a fair probability we may see a rise in prices, especially in financial stocks if support is held. However, earning season has started and any disappointment may invite a sharp turnaround. Hence, find strong stocks with decent entry, but caution is warranted.
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Pankaj