Weekly Market Recap
Until the last week, major indices had been quite resilient and refused for even a minor pull-back since the recent rally launched off in early October, however, I have been saying persistently to wait patiently for the pull-back based on market internals and technical configurations. This week, patience seems to have paid-off a bit if not much as major indices continued to drift lower from Monday to Friday except one day pause on Wednesday.
In the week gone by, the benchmark SENSEX closed down by 348 points, or .85% at 40445, similarly, NIFTY shed 134 points, or 1.12% to settled at 11921.
Current Outlook
The dominant feature on the NIFTY chart is the false break-out off the previous peak that may turned out to be classic double top formation as can be seen on the chart below. Most importantly, false break-out normally leads to above average move in opposite direction.
Technically, the negative divergences among the indicators with respect to price have been in play for quite some time and as I have written in past ideally negative divergences resolve with the correction in price though not guaranteed, but this time its look like to be resolved in an ideal manner. The deterioration in market breadth have been taking place for quite long time while the benchmark indices have been moving up that means they are not in harmony to each other and to me it’s not a healthy sign for the market. Why the breadth is important to understand the overall health of the market is because breadth arrives at the party on time but always leaves early. One cannot assume that a divergence with price and breadth will be a trading opportunity, but it will always be a time to become more alert.
Now, only 5 stocks have a weightage of approximately 50% in NIFTY or we can say only 5 stocks are contributing for more than 50% of the NIFTY movement and it’s a dangerous configuration. Though I am not prognosticating the steep correction in these heavy weights, but on charts they are looking quite vulnerable that implies 5-6% correction in these stocks would be enough to cause a ruckus in the market.
Hence, outlook doesn’t seem to be very good rather it’s a time be alert.
Conclusion
Negative divergences persist, and last week I mentioned along with NIFTYBEES chart that volume is not confirming the rally. Going forward, that is a problem. I think the market is heading lower. Let’s see if there is downside follow through next week. My guess is that we may see some upside, but the week will close lower.
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Stay Alert…!; Be a Savvy Investor..!!
Pankaj