Weekly Market Recap
Indices continued to move higher in a seventh consecutive week. I think, this is the longest and biggest weekly winning streak in last 5 year for the indices without even a single pullback. Longest in terms of weekly gain and biggest in terms of price gain.
In yet another strong week, the benchmark SENSEX gained 861 points, or 1.87% to close at 46960, similarly, NIFTY surged 246 points, or 1.83% to and settled at all-time high at 13760. While BANKNIFTY is still struggling to achieve its previous high and gained only 0.36% this week.
Current Outlook
I was expecting the market to take a pause based on over stretched put call ratio but as I mentioned it is quite difficult to use this tool for price timing. So far it has never happened in the history that precipitous move in the indices is not being followed by sharp pullback. If this time is different only time will tell. However, on the long-term monthly chart of 20 years, I have found some interesting and indispensable observations among few prominent indicators which suggest that long-term break out has just occurred and have enough room to take the indices at extreme higher levels before they get over-stretched or exhausted. Nonetheless, the large base from long consolidation is required to make that gigantic breakout possible. And in last decade we have already seen a linear advance and a cascading fall this year, but large consolidation is missing rather NIFTY has gained vertically from its lows which needs to be taken into consideration before we expect sharp rally from here.
However, there are more than fewer stocks inside and outside NIFTY and SENSEX which are coming out of large base or consolidation and are on the verge of doing so. When a lot of stocks and averages are acting in a similar fashion, it just adds to the strength and credibility of the rally. Hence, in nutshell, the further rally in NIFTY might not be propitious without pullback, but the stocks which have gone through large consolidation are set to enjoy that rally. Ipso facto, outlook for these stocks is extremely positive.
Conclusion
Currently, the market is very overextended on a short-term basis, so we should not be surprised if a near-term correction sets in. However, it seems to me that the positive long-term picture is so powerful that we are better served to focus on that, and most importantly we should focus on those group of stocks which can make that rally powerful. Last but not the least never forget to keep a tight stop specially at a time when 10-20% correction is quite normal.
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Be disciplined…; Be a Savvy Investor..!!
Pankaj