Weekly Market Recap
Finally, major indices not only bounced-off from a crucial inflection point but had a splendid rally in a quixotic manner consequently, NIFTY posted a third weekly best gain since it made a bottom in mid-March amidst full of negative news about the economy, in a hope that worst is over.
In the week gone by the benchmark SENSEX posted a solid gain of 1751 points, or 5.71% to close at 32424, similarly, NIFTY surged 541 points or 5.99% to settle at 9580, while BANKNIFTY which has been the biggest laggard so far did extremely well to post a whopping over 11% gain this week.
Current Outlook
The NIFTY gave a sign of reversal on Wednesday a day before monthly derivative expiry when it closed above pivotal short-term moving averages which I have been exhibiting for last two weeks, also shown here in the chart below. The NIFTY rallied effervescently from its key moving averages and looks like it has more steam left to go higher further, especially at a time when bad news about the economy is enunciated everywhere. This is the second time when major indices rallied ostentatiously after having a little side-ways move as shown in shaded area in the chart below. Last time, NIFTY rallied after a period of small period of consolidation on 4th April and got reversed immediately next day and became a case of false breakout. This time, Is it a whipsaw or a real sign of reversal? Well, this time banking stock ostensibly showing a more strength in contrast to earlier, provided they have a highest weightage in index, it may support the NIFTY to rally further. However, NIFTY has stopped precisely at overhead horizontal resistance shown by red line, if managed to cross that then I think it can smoothly rise further.
Fundamentally, liquidity at this point is not the problem as every central banker across the globe have flooded money into the financial system, that certainly have a terrific implosion on debt-to-GDP ratio among major countries. Whether it is good or bad, but certainly that is unwittingly helps the stock price to become frothy again which is not good. At a time, when migrant worker is going back to their home and the real demand for the all products is diminishing in the economy, the big easy money available to big pockets ultimately chase the stock price that’s again create a bubble to burst which is somberly pestiferous. Moreover, to tackle the unemployment issue, the government is obliged to reward infra projects sooner than later to push private investment in the economy that may lead to some recovery in stocks pertaining to infra and cements.
Hence, technically, the outlook has improved which suggest the rally of some magnitude is still left, however, bear market rallies are full of shenanigans that needs to be addressed carefully as they tend to get reverse or vanished abruptly.
Conclusion
Technical configuration is bullish with strong momentum in place and we shouldn’t go against it. However, instead of index, few individual stocks within or outside the index are well positioned on risk-reward point of view along with safety of margin. Hence, it is better to linger on our attention on relatively stronger stocks while ready with exit strategy if situation metamorphosis.
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Pankaj