Weekly Market Recap
Last week, we saw a sharp move up and down on price action with no change on the indices on a weekly basis which made me think that the markets have entered the supply zone, however, this past week, the indices not only resumed their uptrend but held up the gains till the end. It looks wobbled, though.
In the week gone by the benchmark, SENSEX gained 973 points, or 1.59% to settle at 62027, similarly, NIFTY added 245 points, or 1.36% to close at 18314. While BANKNIFTY continued to lead the advance with a gain of over 2.5%.
Current Outlook
I have been seeing a lot of breadth divergences lately this week. The Daily Advance-Decline (A-D) Line for the NSE is making lower highs, which disagrees with the slightly higher highs seen recently in both the SENSEX and the NIFTY.
This latest divergence is a small one, but small divergences can still be problematic. In fact, this is one of the problems with A-D Line divergences, in that we never know how long they may persist before they finally matter. One other problem is that divergence can sometimes get rehabilitated, which in this case would happen if the A-D Line were to suddenly get stronger, moving to a higher high to take away the bearish messages of the current divergence. That could happen.
However, its purpose is to help identify liquidity problems ahead of when those problems come around to bite the large capitalization stocks which drive the major indices. As those uncommon issues tend to be more sensitive to liquidity, either good or bad, and so they can show problems before the illiquidity comes around to bite the overall market. That’s why I found the index to be wobbled.
On the contrary, it is worth paying attention to the price which is showing some nice strength coming out of last week’s low and holding up the gains ostensibly.
Conclusion
The indices held up its gain, although it is indispensable to note the recent change in the A-D line that simply says that liquidity may be the impeding problem for the stock market going forward, I think we should weigh on that outcome and wait patiently until things improved to complement each other.
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Be Patient; Be a Savvy Investor..!!
Pankaj