Weekly Market Recap
After having a false breakout above the falling trend line last week indices witnessed a cascading fall, however, soon after a touching new low below the 200-day SMA, NIFTY seems to have found support and bounced nicely.
In the week gone by the benchmark SENSEX gained 345 points, or .58% to settle at 59808, similarly, NIFTY added 128 points, or .74% to close at 17594. While BANKNFITY had a pretty strong move and surged over 3%.
Current Outlook
Last week, I wrote about the prices approaching the 200-day SMA, and this week price hit below the 200-day SMA and then rebound sharply. While BANKNIFTY remained above the 200-day SMA as a result relative strength leads a bigger gain among banking stocks during the rebound. NIFTY is exhibiting a similar pattern as it formed in late September and early October 2022 as shown by the blue-shaded-rectangle in the chart, when NIFTY broke below the 200-day SMA and then hovered to that level and then rebound to the 21-day EMA (purple line) and then retest the 200-day SMA which finally leads to a new high.
Currently, NIFTY has rebounded to 21-day EMA, there is a possibility of retesting and then moving higher because most of the charts are repeating its recent behavior, but not guaranteed. Since the early December peak we have been seeing a lower low only last week there was an attempt to break that trend which got nullified as quickly.
It is indispensable to note that the significant difference between these two events of rebounding from 200-day SMA is that the VIX during the last pullback topped at around 23 which has been the higher range in the last two years, however, this time it is at the lower end of the range that suggest a cardinal top is very close. Although the VIX may remain low for quite a long period which is the most favorable environment for bulls.
Conclusion
The clouds of ambiguity are pretty dark; each and every possibility of happening an event is quite strong. Hence, we need to be extra vigilant and patient and most importantly adhere to the rules of exit discipline.
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Be Patient; Be a Savvy Investor..!!
Pankaj