Weekly Market Recap
NIFTY which has been in the 300 points range for about two months spent one more week in that range, but this week warning appeared as NIFTY second time penetrated below that range though it recovered quickly from the low to conclude the week in the same range as we can see in the chart below.
In the week gone by the benchmark SENSEX closed down by 388 points, or .73% at 52586, similarly, NIFTY lost 93 points, or .59% to close at 15763.while BANKNIFTY led the decline and lost 1.28%.
Current Outlook
The emerging dominant feature on the chart is making a lower low (penetrated below the lower end of the range) and lower high as enunciated by the blue downward sloping line. Though NIFTY still appears to be in rectangular range, but subtle observation suggests that in last two-week NIFTY is dispositioned downward despite being in range. The same configuration is being supported by the technical indicators in the lower panel of the chart. Both RSI and MACD are the momentum indicators, and they are sloping downward suggest gradually momentum is shifting downward.
Furthermore, I have been observing that since past few weeks, whenever market opens higher market breadth or participation appears strong, but it turns down week at the time of closing. It is quite precarious as technically closing is more important than opening, and current scenario is not favouring the bulls.
Most importantly, the above said configuration is more evident on the chart of BANKNIFTY below where formation of lower high and lower low is quite apparent. Provided the weightage of financial stocks they can weigh down the overall market.
Technology, left to be the only strongest sector at present, but it appears quite vulnerable to me post parabolic up move. Sooner or later, parabolic advance tends to resolve with sharp correction. History says, parabolic advances may correct at least up to 60%, or in some cases 100%. Though they have been delivering a descent set of earnings but it never last forever. Suddenly Investors would realise, they are paying too much for the stock price as compared to real growth of the business. This has always been the case. That’s because human nature and emotions, and thus responses to the stock market’s movements throughout history, have largely remined intact. They are timeless. That’s why the same types of chart patterns that manifest themselves today will occur moving forward also exited years ago. Hence, outlook seems to be precarious.
Conclusion
There is a possibility that bulls resurgent again and flip the above-mentioned setup. However, unless that happen, I think bears would prevail and gradually will take the charge as current range bound conditions signalling the occurrence of distribution. Once the distribution is complete the markdown phase will start. Hence, stay cautious and be patient.