Weekly Market Recap
In yet another fourth consecutive week, both SENSEX and NIFTY continued to rise to new all-time highs, although some knee-jerk was being witnessed at the middle of the week when market plunged suddenly from half of percentage gain to 1% loss. This is precisely what I mentioned in my last note caution is warranted. However, that plunge appeared to have absorbed nicely as a result the uptrend is quite intact.
In the week gone by the benchmark SENSEX gained 374 points, or .72% to close at 52474, similarly, NIFTY added 129 points or .82% to settle at 15799. While BANKNIFTY preferred to ride on different path and lost .69% which is a cause of concern.
Current Outlook
Technical configuration on the price action has been quite strong since past three week which continued to be the same post this week action. However, as I wrote last week, the negative divergences among prominent indicator are getting more pronounced suggesting a cautious approach while going forward. Perhaps, knee-jerk reaction witnessed this week could be the sign of peril, indicates supply is available at higher level which can easily cause the ruckus in the market if executed. On the other hand, it could just be the change of hands incurred by the smart investors to squeeze out the shorts.
Furthermore, Financials continued to enunciate the perplexed behaviour not in line with the overall market. After a one-week rally most of the heavy weights banking stocks are scrambling to retain their previous highs while NIFTY continued to rise to make a fresh high. However, very few of them are rising precipitously, ideally not sustainable. Provided their weightage in index, this divergence is strong indicator that something untoward is probably about to happen that needs to be taken into consideration gravely.
However, on the flip side, the VIX continued to drift lower in favour of bulls supporting higher prices. Market breadth remained quite strong favouring bulls which I have explained in brief in my past blogs.
Amid ambiguity and flummoxed conditions no sign of technical damage has been witnessed on the chart below as far as price action is concerned which goes in favour of bulls. Hence, outlook appears to be cautiously optimistic.
Conclusion
So, in the balances of above contradictory equations in the stock market, how do we know which factor is going to matter more, divergences or the trend? My answer: we shouldn’t bet against the trend unless sign of technical damage has been seen on the price action. If the trend is not reversing and other conditions such as VIX and market breadth looks bullish, market may continue to rise. However, divergences still matter, and produce noticeable effects on the price pattern. But, we have to wait patiently unless it happens, till then stay long with tight stop loss.
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Keep Analysing…; Be a Savvy Investor..!!
Pankaj