Weekly Market Recap
Last week, I wrote and expected that NIFTY may not only touch new high but can also sustain provided the technical configuration we had last week. This week, Santa Claus arrived and took the market to all time new highs in line with my expectations. In addition, I expected the metal stocks to rally, consequently metal index was up more than 3% this week.
In the week gone by the benchmark SENSEX surged 671 points, or 1.64% closed at 41681, similarly, NIFTY closed up by 185 points, or 1.53% at 12271.
Current Outlook
The weekly chart below is bullish, but the rise from August 2019 low is really too steep. The few indicators below the panel also showing some room before they become overbought, but very soon they will be overbought. However, that also become the case of negative divergence at a time when the index is making new all-time highs.
Some noxious facts I have annotated below on the chart, since December 2017 as we can see there were three precipitous or vertical rise (blue arrows) in the past and all of them were followed by sudden and sharp pull backs (red arrows) and every time each pullback was at least equivalent to the vertical rise. This is the fourth time the NIFTY is rising precipitously in the same manner. I strongly believe every time the reason for sudden and sharp pull back is lack of participation or weak market breadth and the breadth weakness is still intact in current rally as well. This could be a significant problem in this regard going forward.
The price action and momentum seem to be quite strong but history says the opposite as markets not only tend to be perplexed and fallacy most of the time, but its movement are quite inscrutable. Hence, caution is warranted.
Conclusion
As I often do, I am relying on the chart immediately above to formulate an outlook. Recently, I noticed that the current rally is becoming vertical, and is similar to the blow-off as explained above. None of the indicators are as overbought now as they were back then, but a few more weeks of rally could bring them to very overbought levels. I can’t guarantee anything, but if this rally continues for a few more weeks, I can say emphatically that we’ll see an attention-getting correction. As vertical advances are usually doomed to collapse, and the extra-bullish sentiment is part of this setup. Therefore the advance must be digested in some way.
The next week is truncated has holiday on Wednesday, and my original thought was that trading would be light with prices may move sideways, but be alert.
Merry Christmas..!!
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Happy Holidays…!; Be a Savvy Investor..!!
Pankaj