Current Outlook:
Broader market including major benchmark indices Nifty50, sensex and banknifty and across the sectors like pharma, banking, auto and capital good witnessed a steep sell off in last week since 7-Aug to 11-Aug. It was the worst week of the year for the nifty50 & sensex. All the major indices lost both its 20 day EMA and 50 day SMA on last Friday 11-aug that too with the high momentum. Looks like prepared for more weakness. Technically we should get temporary bounce soon, but it’s not likely to last as another significant leg lower will probably follow.
So where do we go from here, now that key moving averages have been lost?
Technically, I didn’t like that steep and fast breakdown and that, combined with ugly MACD (moving averages convergence & divergence), suggest that risk of a significant pullback is growing. The volatility index (VIX) rose 33.41% last week from 10.48 to 15.19 for the first time in 2017. When the VIX is rising, all bets are off as to how low we might go in the very near term. The stock market has a history of going down much faster then it goes up. When fear escalates, bear feast. This is no time to be a hero, risk-reward ratio trade off is not favourable.
So, question arises, whether the market or major indices Nifty50 & sensex has made the top or not?
Well, history tells me that long-term tops don’t form with VIX at historical lows, although history is not much reliable in indicating top and bottom of the stock market. Tops require a process as the market shifts from complacency to fear. It’s way too early to determine if this top was last one before a bear market sets in. I think the correction in August and September will setup a descent rally into year end, as historically period from October to December are in favor of bulls. The key during that rally will be…….. which sector(s) lead ? If we’re lead by defensive stocks and the VIX remain elevated, that’ll likely suggest a bear market is right around the corner. If, on the other hand, money rotates back into aggressive areas of the market and we forge new all-time highs, then I’d bet the current market rages on.
Therefore, being a SAVVY investor modus-operandi is to keep a close watch on developing trend and emerging sector(s) particularly in which direction. So, that we can utilise the trend in a best possible manner before others realize it. That is the key and should be the aim of SAVVY investor. !!!
Happy Investing
Pankaj Saini
(Director)