Weekly Market Recap
It was quite a volatile week for the market as it had a perfect roller-coaster ride with alternate days of rise and fall; having wild swings between the support and resistance which eventually ended up with a decent gain.
In the week gone by the benchmark, SENSEX gained 1510 points, or 2.55% to close at 60841, while NIFTY gain was confined to 1.42%, or 249 points to close at 17854. BANKNIFTY managed to post a decent gain of 2.86%.
Current Outlook
Last week, NIFTY produced a nice exit signal when fell below the horizontal support (blue line) as a result NIFTY opened lower on Monday and found support slightly above the 200-day SMA (black line). Rest of the week NIFTY kept hovering between this support and support-broken-turned-into-resistance (blue line). The volatility was quite expected on budget day and the move was confined in the same range on that day despite being a quite sharp and huge move.
Now, apparently, the rally in NIFTY has stopped at the resistance, we have to see if that hurdle would be cleared smoothly in the coming week or take a pause. Sharp recovery from the lower level suggests that strong hands are keen to buy around 200-SMA which is a sign of an accumulation. Accumulation is the process of large interests stealthily absorbing shares of stocks they expect to appreciate during the subsequent Markup Phase. However, accumulation can take an indeterminant period of time to form. The strong hands will systematically accumulate their ‘Line of Stock’ during this trendless price structure. Eventually, a greater number of Institutional type investors will begin competing for the remaining supply of stock, which indicates that Absorption (and therefore Accumulation) is nearly complete. The Law of Supply and Demand is at work here. Demand is increasing and Supply has been largely Absorbed. This unbalanced condition will eventually throw stocks and the market into a new uptrend and most importantly this is a tedious and time-consuming process. The longer it takes the farther it goes.
While it’s a vice-versa in the case of distribution and as I wrote in my last blog the volatility at a higher level suggests a distribution taking place. Provided the vulnerability on the monthly chart the stock prices may correct to significantly lower once the distribution is complete.
Conclusion
So far, the price has shown a sign of absorption at the lower level which will work as strong support in the near term, however, falling below that level would be quite alarming with a sign of clear exit from the long positions.
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Be Patient; Be a Savvy Investor..!!
Pankaj