Weekly Market Recap

Well, after the government measures announced last Friday, the market moved in a dramatic fashion on Monday as NIFTY opened +100 points higher and then tanked -100 points and finally closed +200 points in the end. I think, the government measures coincided with the monthly F&O expiry week led to such a dramatic move and the drama seems to be over as week passed on, eventually, market became range bound.

In the week gone by, the benchmark SENSEX gained 571 points, or 1.72% settled at 37332, similarly, NIFTY closed up by 193 points, or 1.79% at 11023.

Current Outlook

Friday, post market hours GDP data declared that shows growth rate dropped to six and half year low at 5%. Last week, I wrote that the action taken by government on last Friday indicates me of further weakness at macro level, perhaps government knew about the GDP data in advance that led them to take precautionary measures to arrest the downfall.

I also wrote about the weakness in financial sector, specially the private banks who has enjoyed the higher valuations for last few years, I think, the time for such a rich valuation is over and they may continue to drift lower not only for some time, but may be for quite reasonable time. Technically, I witnessed a structural damage or change among them. And, because of their (private banks) rich valuations, they have comparatively high weightage among index that will weigh down the index significantly if they correct. My conviction of weakness among financials became stronger when I witnessed more than 1500 points rally from its low on BANKNIFTY on Monday, as these kind of big and dramatic move happens to be in bear market on the back of short covering. Such incident or big rally invite individuals or retail investors as they consider it as a big miss, eventually they crave to buy the banking stocks at any level in next short fall and consequently, they becomes the victim of smart money or so called market makers who can easily unload their holding at optimum higher level.

Moreover, the volatility exposes the strength of the bulls and invite bear market, when the benchmark index goes up or down more than 3% in a single day – are not neutral indicators. These “wild days” tend to mark corrections and bear markets. Solid bull markets, when no correction is near, tend not to have any wild days at all. Any wild day is a warning sign that a correction or a bear market is coming or may already have begun. Periods of high volatility, whether the moves are up or down, are correlated with down trending markets.

Hence, outlook doesn’t seems to be in favour of bulls, however, we should remember correction won’t be in straight line and patience will be tested.

Conclusion

The current set up is range bound market. There were an abundance of big up days and big down days, while the market still hovering in trading range, despite breaking down last week. Since this continuation pattern has formed subsequent to the breakdown, we may assume that the ultimate resolution should be downward, but market test your patience and may incite you to be a buyer by producing short rallies.

I welcome any feedback or suggestion you may have about the content of this article.  

Keep exploring.!; Be a Savvy Investor..!!

Pankaj