Weekly Market Summary:
It was not the good start for the market this week, as the broader market tumbled tumultuously for first three days of the week, consequently, benchmark index Nifty, lost the short term key support level of early February low of 10276, which led to the further weakness before it bounced off on Thursday.
Trump’s surprised levy of import tariffs on steel and aluminium imports led to correction in metals stocks which were so far, resilient in recent weakness. In the week gone BSE Sensex lost 739.8 points or 2.17%, before settled down at 33307.14, similarly, Nifty corrected by 231.5 points or 2.21% and closed at 10226.85.
IT is the only sector where green spots were visible, rest were all in red.
Current Outlook:
Starting from gauging two prominent indicators to me, VIX and market breadth. Although market tumbled for three days, but VIX spiked up only for first two days and barely closed above 16 only on Tuesday, didn’t spike on Wednesday along with the fall in the market and subsequently, cooled off for rest of the days, finally closed at 14.52. However, data on market breadth is persistently weak, except on Thursday, when market bounced off, even on Friday, data was not good. So, the outlook is bifurcated between these two indicators, although weak breadth has weigh down the market.
Moreover, I have observed that defensive group outperformed, but only, first two days. And, throughout the latest bull market advance, investors have shunned the defensive groups and continue to do so. That’s why I’d ignore the two day of glory enjoyed by these groups in this week. We need to see a much more concerted effort at rotation before I‘d grow more cautious.
Technically, after breaking down below February low of 10276 on nifty, I was expecting Nifty to go down further, up to around 10k mark at horizontal support, as depicted below on the chart (click on chart to zoom it). However, Nifty seems to have reversed and least likely to touch that level in next week, rather bounce may continue.
In addition to this, many large cap stocks have touched the long term rising lower trend line,( do your analysis) which makes a nice entry point after a quite long time and optimistically, we’ll not get the same entry point near in the future very soon, if bull market is intact. And, historically stocks made the low when fundamentals are worst and pessimism is on high, and that is the case for PSU banking stocks. Recent price action invites the corrective measures taken by the government, to curb the fraudulent practices in order to maintain their sustainability, which ultimately lead to stop in further down fall in prices.
I have lot to write this time, but will share some thoughts next week. Hence, I maintain a cautiously bullish view, especially, post that much awaited correction and will grow more bullish, when and if market breadth strengthens as VIX is already at complacent level.
Conclusion:
So far, the market has rewarded those who kept a stop loss or have followed the selling discipline. It is still possible for the market to veer into a ditch, but I think it is time for me to maintain my bullish stance, as we look the chart above, we can see that extreme tip of the move has corrected, which apparently is sufficient for now. One possible, and desirable, scenario would be for the market to churn sideways in a 5% to 10% for several months in order to digest some of the excess (excess is still visible on Nifty weekly chart). I would advise to start, accumulate the technically and fundamentally strong stocks but keep a tight stop in big positions.
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Happy Investing..!!, Be a Savvy Investor…!!
Pankaj