Weekly Market Recap
Finally, after rising persistently and vertically in the last four weeks, bulls faced an occlusion. The upside momentum was so high as NIFTY easily managed to cross the key resistance level of the upper band of the channel, though it couldn’t sustain there for long and selling pressure emerged which made NIFTY to fell back at the top end of the range.
In the week gone by the benchmark SENSEX closed with a minor gain of 183 points, or .31% at 59646, similarly, NIFTY gained 60 points or .34% settled at 17758. While BANKNIFTY closed with a mild loss of .14%.
Current Outlook
The dominant feature on the below NIFTY chart is the wild swing from October 2021 till now. But in the last two months, we have seen a dramatic reversal in the price along with prominent indicators like breadth, momentum, and VIX. Back in early July, I observed the selling absorption at the lower level that proved so well in identifying the market bottom. Also, I had been expecting the NIFTY to reach the higher end of the range before it gets reversed. And now it seems like NIFTY took a pause at the expected level.
On Friday of this week, the indicators appeared to have rolled down for the first time in four weeks after achieving their highest reading. How many times has this signal occurred in the past year? Three times, on October 19, January 18, and March 6 as enunciated by vertical green lines on the chart. That’s right, pretty much three best-selling opportunities in the last year. Given the run-up off the June low, the key resistance level just at place, and overbought conditions demonstrated by many stocks this week, a pullback in the coming weeks certainly makes sense.
There is certainly plenty of buying power that has been unleashed, as evidenced by the last eight weeks. But this Friday may have been the signal that all is not well, that macro headwinds which propelled the market lower into the June low still very much exist, and that a similar structure in price and indicators may suggest a lower price ahead.
Conclusion
I wouldn’t be surprised if we see another leg of the rally in NIFTY. Given the technical structure, the price may tend to correct from the current level as evident in the past. However, it is indispensable to consider all the potential outcomes that help to manage the risk appropriately.
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Be Patient; Be a Savvy Investor..!!
Pankaj