Weekly Market Recap
In my last weekly note, I mentioned possible double-bottom formation on the daily chart as sentiment and indicators have reached the meaningful bottoms. This week’s price behaved mostly in line with my expectation; NIFTY bounced off feverishly early this week followed by a sharp reversal and finally closed higher.
In the week gone by the benchmark, SENSEX closed higher by 1532 points or 2.9% at 54326, similarly, NIFTY surged 484 points, or 3.07% to close at 16266. BANKNIFTY also behaved in the same manner with a gain of 3.49%.
Current Outlook
The technical configuration on the NIFTY is still quite the same as we saw last week, in a declining channel with a wide range. And, the second-time price has returned into the channel after penetrating below the channel as we saw last time in March. The double-bottom formation is more pronounced as the price precisely got reversed from the same level earlier. Last time price ostentatiously rallied up to the top of the channel without any significant disruption, however, this time price may tend to get range-bound at a lower level as NIFTY might already have defined its range between recent low and high as enunciated by the shaded portion.
It is super difficult to disconnect from the emotional impact of investing. Abstract from my last blog, “when prices go down, people turn more bearish. It is a natural human phenomenon, and it is still working during the current price decline. The useful aspect of this is that, when you see an extreme reading for a sentiment indicator, it is a sign that a bottom is at hand for prices. As extreme negative reading has been reached among the indicators in below panel that implies price may bounce to some extent from current level but seems less likely to rally up to the top of the channel”. This is meaningful information. The indicators in the below panel are rolling up and showing a sign of positive divergence.
However, likewise last week, on the weekly chart the indicators have enough room to fall further, though downside momentum appears to be diminishing for a while which can further accelerate after a pause. And the VIX is still elevated, but quite low as compared to global markets VIX suggests room to rise. Hence, ambiguity is still there.
Conclusion
The long-term market trend is still down, but the short-term condition has improved drastically. Participation also seems to have improved but changes quite frequently. Provided rapid change in the price behavior it’s prudent to wait patiently and keep analyzing before we rush to buy as there is a fair probability, we may see intense selling again at a higher level.
Feedback, comments, suggestion, or questions are welcome in the below comment section or at [email protected].
Be Patient; Be a Savvy Investor..!!
Pankaj