Weekly Market Recap
This week started off on a positive note and recouped all its last week’s losses till Wednesday, however, it was followed up by the cascading fall in the last two days and ended up at the lowest point of the week. Almost all the major sector indices contributed to the decline.
In the week gone by the benchmark SENSEX fell 843 points or 1.36% to close at 61337, similarly, NIFTY lost 227 points or 1.23% to settle at 18269. BANKNIFTY which was bucking the downtrend for the past two weeks also fell 1%.
Current Outlook
Last week, I started with the phrase that “All large Losses begin as small losses”. This week’s price action perfectly redefines that phrase. Charts give you a window into the collective psychological state of investors. Are people excited or panicky? Euphoric or despondent? Optimistic or pessimistic? All of that is embedded in price action if we know how to analyze the trends or the movement.
As the market rallied strongly off the October lows until recently it felt as if the market could be building enough momentum to rally straight through the new year. If there was one thing to take away from this rally it was that this “vertical advance” is highly unlikely especially in the absence of strong market breadth as I have discussed the same in my last weekly notes.
What has changed in the last two weeks? Well, to put it simply, the market has stopped going higher and falling sharply. The NIFTY has fallen below the previous resistance (blue line) as can be seen in the chart below, it suggested that the recent rally may have exhausted its upside potential.
Seasonally speaking, November and December are two of the strongest months of the year. Over the last 20 years, November has been up 80% of the time. December has been positive 70% of the time. Now, it’s worth noting that this means, 30% of the time (or six years out of 20), December has actually been a down month.
Seasonal tendencies are just that—tendencies. Not absolutes, not guaranteed moves, but tendencies. However, the weak move in a supposed to be the strongest month tells about headwinds going forward.
Conclusion
The most bullish thing the market can do is go up. And based on measures we’ve discussed based on price, trend, breadth, and seasonality, that no longer appears to be the case.
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Be Patient; Be a Savvy Investor..!!
Pankaj