Weekly Market Recap
It was quite a volatile week for the market. Both NIFTY and SENSEX bounced off sharply from last week low, at one point they recouped almost all its losses before shed half of their gains in last two days. Nevertheless, its was a descent recovery fuelled by so far performing sectors like technology, financials, and metals.
In the week gone by the benchmark SENSEX gained 1305 points, or 2.66% and re-claimed the 50K to close at 50405, similarly, NIFTY added 408 points, or 2.82% to settle at 14938. While BANKNIFTY slightly underperformed and gained 1.22%.
Current Outlook
NIFTY has recovered significantly from its last week low that shows good demand is available at lower level, however, in contrast supply is quite apparent at higher level as enunciated in the shaded portion on the weekly chart below. There is a tussle between buyer and seller in that range. NIFTY facing stiff resistance at or above 15400 and so far, suggesting strong buying at around 14500. The solid rebound again left an impression that market is still poised to gain further, however that may not be the case in fact. It is indispensable to consider quite simple, tested and proven configurations on the chart. Firstly, NIFTY has gone far above from its short-term moving averages, consequently we saw cascading fall last week, I have not found any evidence that NIFTY has ever been able to hold and sustain far above from its moving averages in last five years, in fact it has always pulled back post this precipitous rise as clearly visible on the chart. Secondly, the divergences among momentum indicators yet to be resolved and still indicating lower prices going forward, unless resolved completely.
Furthermore, so far best performing technology index CNXIT, which is comprising of IT stocks is showing a sign of toping formation on the long-term chart. If that’s true it could weigh down the NIFTY significantly. Financials appears to be the only heavy weightage sector which can support and drive the NIFTY higher, but supply is dominating at higher levels which is quite evident on the BANKNIFTY chart.
As I wrote last week, I was cautiously positive on the reality and metals stocks, they did well this week with respect to rest of the market and continued to rise further, no sign of reversal is being seen yet, except they have risen significantly that can invite some profit booking. So far, the technical configuration on the chart is quite vulnerable for the NIFTY, but amid unusual volatile environment it can rise sharply though temporarily. Hence, outlook is not favourable for buyers provided risk return ratio except in few selected stocks.
Conclusion
While, we are seeing a strong upside momentum at lower levels, but it deteriorates as price go up, we can look at it as an opportunity to sell into strength and wait patiently unless price come back at major support level to initiate again. This is one of those volatile times when stops are getting triggered frequently, however, that is the key to remain float and be successful while investing or trading in this market. Hence, never compromise with your selling discipline and always keep a stick stop loss.
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Be Patient…; Be a Savvy Investor..!!
Pankaj