Weekly Market Recap

As I mentioned last week, indicators on charts were suggesting over-sold condition that could lead to some kind of bounce-off, so as happened this week. In the week gone by, the benchmark SENSEX ended up with a gain of 463 points, or 1.25% at 37581, and NIFTY gained 112 points, or 1.02% ended at 11109.

Current Outlook

After falling precipitously for four weeks in a row, this week bounce on NIFTY and SENSEX seems to have defined a short-term support and resistance. Monday’s low and Friday’s high of this week may act as short-term support and resistance for next few days. Most of the indicators were suggesting over stretched conditions on the daily charts, in-addition, sentiments became quite negative which is supposed to be contrary to the direction of the week, perhaps that was the prominent reason for bounce-off other than government intention to roll-back of higher taxes for FPI’s.  The recent bounce has resolved this over stretched condition which has created a further room for the prices to come down, however this may take a while for breaking down below the recent low on the back of negative sentiments. When a price drop below the 200 DMA (daily moving average), it’s a sign of long-term weakness and it is quite evident on the chart below. Now, the 200 DMA may act as a resistance.

Most importantly, the market breadth while bouncing off was not as strong as it should be this suggest the problem remains the same. Moreover, the VIX is far below than over-sold condition which is again suggesting correction is not over yet. I think, bounce is over and we are in the process of spending some time in this week’s low and high. Hence, current outlook looks like range bound market at least for next few days.

Conclusion

It appeared to me that markets became momentarily disconnected and unstable early this week. There was different feel, as if panic had set in, but that soon passed when the selling dried up on Thursday. As far what might happen next, I looking for a another leg down towards low of this week. Next week is truncated, market will open for three days, so I will be looking for low volatility and range bound action.

I welcome any feedback or suggestion you may have about the content of this article.  

Be Patient..!; Be a Savvy Investor..!!

Pankaj