Weekly Market Recap

Market rallied stupendously this week, after a pause last week. NIFTY smoothly broke out above most talked about head and shoulder pattern by me, not only that major indices managed to close near the week’s high. In the week gone by the benchmark SENSEX closed up with a solid gain of 1106 points, or 2.83% at 40165, similarly, NIFTY also surged 306 points, or 2.65% settled at 11890.

Current Outlook

Although the indices are touching or close to new high, but market breadth is not confirming the rising tops. As if the heading suggest, SENSEX touched new high, but NIFTY not means 30 stocks are participating and contributing more than 50 stocks. Unfortunately, some other breadth and momentum indicators also disagree. However, it is fairly easy to resolve this disagreement when the prices are touching new highs. As is said, I would pretty much give up the idea of prevailing weakness if head and shoulder pattern taken out on NIFTY (refer my last blogs). Last week I also admit that I wouldn’t be an aggressive buyer either post break out.

There is much ambiguity with the indicators on long term weekly chart, other than broadening top as I wrote last week, in the lower panel of the chart below, indictors are conflicting with each other, as if some are suggesting negative divergence, few are indicating over-bought reading and some are suggesting enough room to advance. However, on monthly chart (see yourself) all indicators are in tandem with each other depicting negative divergences which ideally resolve with correction in price, but not guaranteed. Moreover, few heavy weights have shown a exhaustion climax, not a good sign. Despite, made a significant new highs by the heavy weights the indices have not been able to achieve substantial highs. Although, index may continue to rise but internals are not favourable, hence, outlook still in doubt.

Conclusion

The trend is up, and of course, the SENSEX touched record highs, so what’s not to like? I don’t like all the negative divergences on long term monthly charts, I don’t like weak market breadth, there is significant drop in the number of stocks participating in the advance. Therefore, I am obliged to think that the persistent internal contraction can’t lead anywhere good.

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Pankaj