Market Recap:
Last week I wrote that, although market is inching higher but market breadth (net of advances and decline) or AD ratio on NSE was not impressive, barely 1:1, which indicate some internal weakness was prevailing, perhaps smart money was looking up ways to exit at higher level. On Monday market started off with breakout, overcame previous over head resistance at 10138, and hovered around broke out zone for next couples of date, as it can be seen below on Nifty50 chart. Thursday was a volatile session on the back of hawkish comments by the US Federal Reserve and the market failed to stay above broke out zone and got back into the trading range. However, the key point I noticed during that period was again the AD (Advance Decline) ratio which had not improved, rather becomes weaker. Finally, On Friday, the market witnessed steep sell off till the end of the day, along with worst AD ratio 1:10. Nifty50 dipped below the psychological 10000 mark to close at 9964.40, while Sensex shaved off 1.38% to close at 31922.44. The weakness may be attributed to two main factors, first, weak global clues over concern that North Korea may test a hydrogen bomb over the Pacific Ocean and secondly, recent revision of china’s sovereign rating downgrade by S&P rating agency due to huge pile up of debt.
Current Outlook:
We are in one of the most bearish historical month of the year and I have provided this information in my previous blogs. I am pointing out this again because the correction on last Friday was the biggest one day fall in last one year. AD ratio (1:10) is also totally in favor of bears. An abrupt change in leadership is also being witnessed, as pharma stocks had the best weekly gain in last one year and all major sectors, especially metals stocks lead the decline which has been the best performing group so far in this year. My experience says that, a failed break out, most of the time if not always end up with a fresh breakdown, which is below 9686 (August low). Hence the outlook is quite cautious.
Conclusion:
The short term picture is bit murkier, while technically, there is plenty of room for the Nifty50 to pull back to August low at 9686, which is 3% down from current level and then may meander between trading range for quite some time. Meanwhile, we should find out the fundamentally strong companies near to key support level but with strict stop loss as we don’t know where the correction ends.
Plan Your Investment…..Be a Savvy Investor..!!
Pankaj