Weekly Market Recap
Last week, I mentioned that on the long-term weekly chart NIFTY has broken the support of a rising trend line whose implication is the pullback of some magnitude is quite possible. And this week we have witnessed a sharp pullback towards the previous low in line with my expectation, however, indices appeared to have found support in the short-term at a lower level amid high volatility.
In the week gone by the benchmark SENSEX closed down by 1836 points, or 3.11% at 57200, similarly, NIFTY eroded 515 points, or 2.92% to close at 17101. While BANKNIFTY outperformed significantly and finished the week in positive territory with a gain of 0.31%
Current Outlook
As stated earlier the technical configuration on the chart is double-top formation while the second top is tilted downward and the low between the tops is acting as good support as enunciated in the chart below. Now the question arises, Is the correction over? Technically, it is not clear yet, but in the short-term chart, the oversold condition has been established as the daily Advance-Decline ratio gets down significantly to its lowest level 0.02 on Monday and Tuesday. It is possible to get a lower reading than this, but that usually takes a big negative surprise like COVID in 2020. The rest of the time, a very low reading like this is usually enough to mark at least a temporary end to a big selloff.
However, for timeframes longer than a few days, there is no sign of the oversold condition. As we can see in the below weekly chart, the indicators in the lower panel are still falling and they have enough room to fall before making a case of oversold condition.
Though it looks like NIFTY has found support in the vicinity of the previous low and might be giving a message that this is yet another “buy on the dip” moment as we have seen during this bull market phase. But deeper and more painful corrections usually look like this just before things start to get really ugly. Is it the most likely scenario? Perhaps. Is it a very real possibility? Perhaps. It is prudent to always consider all the potential outcomes!
Conclusion
There is an ambiguity that needs to be clear before we can say the correction is over. I think markets may remain sideways for quite some time while selling at higher and buying at lower level shall continue. However, I believe the better and more permanent bottoms for stock prices tend to occur when the indicators on weekly charts have much lower values.
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Be Patient; Be a Savvy Investor..!!
Pankaj