Weekly Market Recap
Three weeks ago, in my last weekly note, I wrote that there is no clear sign of topping but conditions developing and since then the market has been struggling to find its roots at a higher level; in fact, we have seen a sharp pullback of about 1000 points in NIFTY from its all-time-high. This truncated week, the selling pressure seems to remain intact which has pulled the prices at the lower end of the range.
In the week gone by the benchmark, SENSEX lost 982 points, or 1.37% to close at 70700, similarly, NIFTY shed 269 points, or 1.25% to settle at 21352. While BANKNIFTY has led the decline in the past two weeks with a loss of over 10% including a loss of around 2% this week.
Current Outlook
In early January, the earning season started with a bang where IT stocks demonstrated a stellar show when the prices zoomed over 10% post their earnings while banking stocks chose a different course and enunciated the worst performance; the big name HDFCBANK lost over 15% post it’s earning that I think has been the unprecedented naught reaction so far.
It is important to note that HDFCBANK’s performance is mostly driven by the retail segment; if the stock price is punished so hard that means the market is sensing some serious problems from the retail segment that could also have a significant impact on the auto sector as well. In addition, I have found a similar pattern in a few of the auto stocks, MARUTI is one of them. However, I need to be sure enough, that correlation is a genuine one, especially when they are correcting, though they might have a lag time when comparing to stock price behavior.
Moreover, the NIFTY still seems to be overstretched on weekly and monthly charts, and with this understanding of that relationship, it is not surprising to see further correction in stock prices.
Conclusion
The upside momentum is fading away and the divergence between the price and the indicators is quite inevitable. Now we have to see whether it’s a good time to buy banking stocks or auto stocks or to sell them both.
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Be Disciplined; Be a Savvy Investor..!!
Pankaj