Weekly Market Recap
It was again a brutal week of many areas of stock market, mostly for oil marketing companies like BPCL, IOC and HPCL; all were down by more than 30% in last 2 days as they have to absorb the burden of Re 1 per litre of fuel sold.
In terms of absolute points, the market witnessed biggest-ever fall last week, with the Sensex losing 1850 points, or 5.11% to close at 34376, and Nifty shedding 614 points or 5.62% to settle at 10316.
Current Outlook
Note that both prominent indicators; VIX (volatility Index) and market breadth are not showing a sign of any relief from panic selling in near future. VIX, measure of fear and complacency, now at 19.73, indicates fear-looming and we have seen VIX risen up to 27-30 mark in past corrections which is far away from current level. Advance decline ratio on Friday on NSE is at 0.28 (advances-411, declines-1435) indicating continuous selling from all areas of the market till last moment.
If I talk about money rotation, I don’t think money is rotating to any area of the market, but only exiting. Even though dollar is at all time high, still IT stocks were under pressure, I find that to be important because it tells me something.
On Fundamental side, Nifty PE hit all time high at 28.66 on 28-Aug-18, which was above 2-standard deviation from average PE of 19.52 and historically, whenever Nifty PE has crossed above 2-standard deviation, it corrects at least up to average PE (19.52) or -1 standard deviation (16.12), while current PE is 24.95. For further analysis refer my blog dated 27-Aug17.
Conclusion
Can we get a short-term bottom next week? Perhaps, yes. For the long-term, I think we will soon run into problems due to many micro and macro factors. I think still there are many shorting opportunities but we have to execute them very carefully, keeping risk reward ratio in mind with tight stop loss as steep fall has a tendency to bounce-off sharply, though temporarily.
I welcome any feedback you may have about the content of this article.
Profitable Trading..!; Be a Savvy Investor..!!
Pankaj Saini