Weekly Market Recap

This week market (Nifty and Sensex) started off  started off on a negative note and drifted lower to the lower end of the range i.e. 10600 for the NIfty, however, eventually bounced-off sharply from the horizontal support up to the middle of the trading range (or rectangle) to recoup all the losses.

In the week gone by, benchmark Sensex closed with a mild gain of 62 points or .17% at 35871, and Nifty slightly outperform the Sensex and closed with a gain of 67 points, or .63% at 10791.

Current Outlook

The dominant feature is the trading range that has contained the prices for over 2 months, so as the rectangle formation is quite intact (see the chart below). For over two months, Nifty is taking support and facing resistance at 10600 and 11000 respectively. Furthermore, the market breadth since last few months, especially, in last two months of trading range has been quite deteriorating, although both Nifty and Sensex have been in innocuous trading range. However, in last two days, in the backdrop of bounce back from horizontal support the market breadth was quite positive, it could be the result of short-covering as most of the mid-cap and small-cap has corrected more than 40-50% in last few months, in fact, few have lost the market cap of 80% and still struggling to find the support.

In addition, VIX (volatility Index) has eased off a bit from alarming 17-18 zone to 15.45 now, still not in a comfort zone, in fact it has more room to bounce-off again if something goes wrong. The earning season is almost over and it appears that earnings has not improved substantially to trigger a rally of some magnitude.

It is, however, apposite to note that this range bound delineation on the chart will not continue for longer period of time and eventually, Nifty has to either break-out or break down from this range sooner than later. It is pertinent to wait patiently for the weight of evidence instead of prognosticating any course of direction. Hence, Outlook remain neutral to negative to me.

Conclusion

The existing trend is range bound. The chart above is a good road map to many possibilities. As I wrote in my last blog that I found lost of momentum in large cap which has been supporting the Index so far. Correction in large cap and some improvements in beaten down mid-cap is one of the possibility. Hence, we should be prepared for few possibilities but with caution.

I welcome any feedback you may have about the content of this article.

Keep exploring..!; Be a Savvy Investor..!!

Pankaj