Weekly Market Recap
The market continued to move higher into the end of the month to achieve the ever-highest reading among major indexes. Though slight correction is being witnessed in the first two days of December still NIFTY closed at the summit and left many investors scrambling to determine how to play the remainder of 2022.
In the week gone by the benchmark SENSEX closed up with the gain of 574 points, or .92% at 62868, similarly, NIFTY finished the week by adding 183 points, or .99% settled at 18696. BANKNIFTY which had reached the new high early continued to inches higher. While CNXIT after being a laggard for quite some time is now taking the charge and has gained 2.37%.
Current Outlook
The IT stocks have led the stock market weakness on the way down in 2022. They have also lagged during the 3rd quarter rally. This weakness has been a drag on major stock indexes such as the NIFTY and the SENSEX. Last week, I mentioned that if IT stocks began to perform then its effect on indices would be significant. With the recent rally phase well underway now the IT stocks appear to be preparing to play catchup with a bout of outperformance. I believe, if they shake off their underperforming ways, even temporarily, it could put stock indexes into hyperdrive.
However, the given technical configuration posts this current effervescent rally suggest a pause or a pullback going forward. Foremost, ideally, the vertical advance is not sustainable unless there is a large base of a sideways trend. Further, prices have deviated far from their short-term moving averages which needs to be corrected. In addition, most of the indicators have reached their higher reading reflecting a so-called over-bought condition. Though over-bought is just a condition that may remain the same for a longer period of time, still need to be considered for protecting the profit or to make an entry.
Hence, minor correction is inevitable up to the green horizontal line which is coinciding with the 21-day EMA as shown in the chart, if that level holds, we may see the next leg of the rally.
Conclusion
Better participation from IT stocks would be a boost to the stock indexes, at least temporarily. They are at a very important juncture on the charts, and we should monitor developments closely.
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Be Patient; Be a Savvy Investor..!!
Pankaj