Weekly Market Recap
For the last two weeks, I have been writing that it is quite likely that the market may gain significantly from the then-current level as I found enough evidence to claim that selling absorption at the lower level was one of them. This week, the market turned out precisely in line with my analysis and expectation where bears continued to loosen their grip while bulls took the charge of the rein.
In the week gone by the benchmark, SENSEX gained a whopping 2311 points or 4.3% to 56071, similarly, NIFTY surged 670 points or 4.18% to 16719. While BANKNIFTY resurgent effervescently to lead the advance with the gain of 6%.
Current Outlook
After having a decent pull back last week up to the lower end of the channel, NIFTY started this week with a gap-up opening and continued to rise till the end with some consolidation in between as enunciated by the green shaded area on the chart. This ostentatious rise shows strong upside momentum which appears to continue for a while. Though this hasn’t been uncommon for the NIFTY to have a gap-up opening since correction started last October. That means it is quite a possible rally may fizzle out somewhere at the higher end of the falling channel. However, NIFTY may still have another 1000 points to rally before turning around.
If I talk about the trend of the market in the intermediate term which is still downward unless NIFTY breaks above the falling channel. However, it is important to identify a key level, price, signal, or reversal although in short term. That’s a point where we should agree to revisit our investment or trading thesis. This has helped me to avoid some of the temptations of behavioral biases like confirmation bias, which means closing your short position if there is enough evidence of a reversal in the price. We should pay attention to the evidence that the market provides.
Therefore, when I found veritable evidence of selling absorption, I definitely took notice and converted my positions from short to long.
Currently, the NIFTY is in rising mode and the VIX has alleviated substantially suggesting an ideal scenario for the bulls. However, in the recent past, we have witnessed frequent vicissitude, where sharp and sudden reversal has been quite a common phenomenon among stocks and indices.
Conclusion
The recent surge in momentum is favoring the bulls, despite we are still in a downtrend upside range is quite big. NIFTY has enough room to gain from the current level if the rally continues. But keeping in mind the sharp and sudden reversal like in the recent past, caution is warranted. Hence, keep a tight stop in your long positions.
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Be Patient; Be a Savvy Investor..!!
Pankaj