Weekly Market Update
The fresh week started off with the corrective action completely in line with my analysis and expectation as I shared my thoughts in the last weekly note. Major indices continued to drift lower throughout this week. No sectors appeared to be immune to the pullback whilst heavy weights IT and Banking led the decline.
In the week gone by the benchmark SENSEX lost 940 points, or 1.55% to close below 60K mark at 59900, similarly NIFTY shed 245 points, or 1.36% to settle at 17859. While BANKNIFTY fell 1.86%.
Current Outlook
Technically, Friday’s low on NIFTY may have likely support as it forms a double bottom with the mid-December correction if that support holds NIFTY may bounce up to the 18300 level. Friday’s price action seems to have put an exclamation point on the importance of this support level. We may see some sort of consolidation before the next big move comes in. The one important characteristic of this correction is that selling is being refrained at the lower level and becomes active at the higher level which makes a classic example of a sell-on-rise market instead of a buy-on-dips.
Moreover, any potential support or resistance level is further validated when the price action demonstrates the importance of the level. To put it another way, the more times the price test a particular level, the more significant it becomes. So, the fact that the market has basically sat on this level since mid-December is arguably the most important support that this level is valid and the recent high of 18300 could be the first resistance.
However, on the monthly chart, NIFTY looks a quite vulnerable post forming a bearish engulfing candle as I mentioned last week which suggests NIFTY may correct significantly in the coming weeks or months. In the short-term sharp bounces may continue to surprise us and that will so invite the buyers which is quintessential for the sellers to distribute the shares at a higher level.
Conclusion
In the short term, we may see few rallies, but the picture on the long-term chart still appears to be overstretched and that needs to be resolved before a fresh uptrend begins. Now, earning season has begun let’s see how the price reacts to the results that will further define the next course of direction.
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Be Patient; Be a Savvy Investor..!!
Pankaj