Weekly Market Recap
Finally, we saw a mild correction in indices after having a boisterous five consecutive week rally. Last week, the party was disrupted by IT stocks which were followed by a sharp reversal in NIFTY from the brink of the 20K mark. And this week that reversal further progressed into a first mild weekly correction after many days of gain in raw.
In the week gone by the benchmark, SENSEX lost 524 points, or .79% to close at 66170 and NIFTY shed 98 points, or .50% settled at 19646. While BANKNIFTY lost a few notches extra with a loss of 1.32%.
Current Outlook
After witnessing a lopsided wild run of more than 2000 on NIFTY, now it is obvious to think of any minor pullback with a different perspective whether it is just a pause or a sign of reversal.
Well, technically, at this juncture, the probability of being further corrective action is quite likely. As we can see on the weekly chart; the last weekly candle that occurred due to a sharp reversal was the shooting star followed by a negative candle this week suggests the pull of at least some magnitude is quite possible. Furthermore, the deterioration in upside momentum is quite evident as indicators in the below panel are rolling down after reaching the upper limits further supporting the corrective action in the coming days.
Last week, I pointed out that prices have exceeded far above the exponential and simple moving averages that make the condition riped for a sharp correction. Now the short-term exponential weekly average (purple line) is coinciding with the breakout zone of the previous high, so the pull back up to the previous high is possible.
Moreover, it is indispensable to note that the cardinal tops are being formed with rhapsodic and euphoric moves like we have experienced recently. In addition, extremely low levels of VIX can easily upheaval and vicissitude the conditions.
Conclusion
Though the current configuration is bearish, we have experienced quick downside reversals in the recent past that need to be considered before we immediately close the long positions. However, caution is warranted, hence stopping loss in buying positions is extremely important.
Feedback, comments, suggestion, or questions are welcome in the below comment section or at pankaj@savvycapital.co.in.
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Pankaj