Weekly Market Recap
After having quite volatile sessions in past two weeks the market exhibited a muted response this week along with a significant decline in volatility. Although the week started off with some pull back but remained in a narrow range and finished in the vicinity of the previous weekly close.
In the week gone by the benchmark SENSEX close down by 156 points, or .26% at 60682, while NIFTY and BANKNIFTY remained absolutely flat to finish at 17856 and 41559 respectively.
Current Outlook
The dominant feature on the chart is NIFTY is facing resistance at the falling 21-day EMA (purple line) which is coinciding with the horizontal resistance (blue line). In the past two months, the 21-day EMA has been acting as a strong resistance and has proved to be a quite strong reversal signal as enunciated by red arrows on the chart below. NIFTY, since falling below the 21-day EMA in the middle of December hasn’t been able to cross that level and persistently falling along with it. However, in the last penultimate time, NIFTY barely crossed above that level as shown by the blue arrow, but fell sharply thereafter. Similarly, the same configuration is developing this time as well; the market tends to repeat its recent past behavior which suggests a decent pullback.
On the positive side, the volatility has alleviated significantly this week, the VIX pushed back below 13 which shows less fear and uncertainty. Moreover, the market tends to have sustained advances on lower volatility because investors tend to accumulate the shares over time during a bull phase. They don’t anxiously accumulate shares, so a market uptrend with a relatively low VIX would be pretty bullish. On the contrary, quite low VIX may be the beginning of a return to a higher volatility regime.
Conclusion
There is an ambiguity at this juncture. Unless NIFTY breaks above the 21-day EMA decisively it tends to follow the recent past behavior, which is a corrective move. Hence, the buyer needs to wait patiently, however, short sellers have a very close stop.
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Be Patient; Be a Savvy Investor..!!
Pankaj