Weekly Market Recap

The week was expected to be turbulent and volatile and the entire week spent on expected line with alternative days of gain and loss, except an extra gain on Friday; when Nifty gained 65 points to make the weekly closing in green.

The benchmark index, Sensex finally ended the week posting a modest gain of 298 points or .85% to close at 35457; similarly, Nifty gained 97 points or .92% this week to settle at 10682.

Current Outlook

Although the market seems to be inching higher, but The First Death Crosses Appear – meaning that the 50 DMA ( simple daily moving average) has crossed down the 200 DMA after a long time, last time it occurred in December 2016 (see the chart below). Why we saw “death cross” over too late, specially at the time when the market is bouncing off ? Because the index tend to lag most of their component stocks, thanks to their cap-weighting. For example, while the Nifty itself is 2 week away from a death cross, in actual fact, 40% of Nifty component stocks have had 50 /200 DMA death crosses a month ago.

I observed one more interesting fact, between momentum shares and low volatility shares; both represent opposite sides of the market. High flying growth stocks belongs to momentum stocks, while the more boring value stocks belong to low volatility group. Using these two in analysis, chartists would like to adjust their strategies. The market is running hot and the risk appetite is strong when momentum stocks outperform (risk on). Conversely, the market is running cold and the risk appetite is weak when the low volatility stocks out-perform momentum stocks (risk off) as is the case now. Among aggressive areas like auto, metals, cement, technology and financials all are underperforming the market. Stocks like PSU banks and utility stocks are doing well. This means the low volatility group of stocks are outperforming the momentum stocks.

Hence, I believe we are in a bear market.

Conclusion

Bull or Bear? If we are still in bull market, chances are that formation will resolve in next few days or week. If, as I believe, we are in bear market, it is more likely that that the current bounce will fail sooner or later and resolve downward.

Next week is short one, Gurunank Jayanti on Friday and no trading.

I welcome any feedback you may have about the content of this article.

Keep Exploring..!; Be a Savvy Investor..!!

Pankaj