Weekly Market Recap
In yet another volatile week markets had a wild swing from a false breakout above the channel to a sharp pull back into the channel. Almost all the heavyweights in NIFTY got reversed from key levels; especially technology which showed signs of coming back last week and once again led to the decline feverishly.
In the week gone by the benchmark, SENSEX lost 952 points, or 1.58% to close at 58840, similarly, NIFTY shed 302 points or 1.7% settled at 17530. While BANKNIFTY managed to stay in green with a gain of .89%.
Current Outlook
Last week, the market closed on a positive note with a strong impression of an impending rally in the forthcoming week. Though this week started off with the fresh breakout above the one-year-long channel, later in the week rally got fizzled out that eventually turned out to be a false breakout. And the false breakouts are often followed by an above-average price trends in the opposite direction of the original signal. A classic example emerged this week. It has been found many times in the past that the temporary upside breakout is being followed by a nasty decline. The magnitude of a pullback this week enunciated the same behavior.
Moreover, the indicators which were rolling upward last week have turned around ostensibly making a case of negative divergence where price made a recent new high, but indicators couldn’t reach a level corresponding to the previous recent high in price. That further suggests a corrective action going forward. Furthermore, it is important to note that the way IT stocks has turned around sharply lower indicates that the composite operator or smart money has been waiting patiently to offload their holding at a higher level. The reversal at the key level is the prime indicator of this kind of behavior.
Most concerningly, suddenly the market breadth has become surprisingly weak which is not good news for the buyers. Now, all hope lies on banking stocks which have been the strongest and outperformer in recent times and managed to demonstrate some strength. Despite the questionable market conditions, this group stands out with a strong pattern and bucking the downtrend. It’s hard to say whether they will follow the same suit or not, but as of now, they are incisively strong. The weakness in financials can easily take the NIFTY at the lower end of the range or may be lower than that.
Conclusion
I’m concerned about the downside potential in NIFTY as in past year it has reversed dramatically in the same fashion which can take the NIFTY to significantly lower levels. However, downfall stalling at the middle of the channel could also be a possibility. Hence, it’s time to be extra cautious and patient.
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Be Patient; Be a Savvy Investor..!!
Pankaj