Weekly Market Recap
The market continued to move higher in a third straight week, but this week gain was narrowed as compared to past two-week ballistic move with an alternate day of gain and loss, albeit high volatility. Major indices are sitting at all-time high, though shown some weakness on Thursday perhaps on account of weekly expiry which was followed by some recovery on Friday.
In the week gone by the benchmark SENSEX rose 439 points, or 1% to close at 43882, similarly, NIFTY gained
Current Outlook
Since NIFTY has gone through such a gigantic up move in a short span of time; it is obvious that NIFTY may face some kind of consolidation or pull back thereafter. Nevertheless, diminishing momentum combine with extremely high positive sentiment suggest buyer exhaustion and may invite sharp correction. As I mentioned in last note that in past 8 years NIFTY has always corrected sharply post precipitous rise that can be seen in the chart below.
Although, NIFTY broke out above the previous high especially at a time when overhang of uncertainty from COVID-19 has been looming around that indicates two things. First, market is seeing sharp recovery in the economy when most of the economist or analyst have expressed their opposite views. Or second, it is just a bounce from extreme negativity to positivity which might get resolved with gradual offloading sooner than later. At present, probability favours the formal as bulls are having tight grip on the market as not bestowing second chance to those who has missed the powerful rally.
However, technically, I found grave weakness in one of the heaviest stock RELIANCE. After analysing the chart deeply in different time frame, I found a case of perfect distribution which may produce surprisingly downside target. And provided the stock is enjoying the heaviest weightage whose repercussion could be pernicious to the overall market.
Certainly, finding stocks that seem poised for long-term breakouts and heady momentum runs is getting harder. Moreover, this type of volatile and choppy trading action like we saw this week often signals that a bull market is getting old. Yet, despite all the factors which anyone could use as an excuse to avoid trading stocks, the general action remains positive. Therefore, it is axiomatic to ponder that outlook is cautiously positive.
Conclusion
Most importantly, it is noticeable and interesting to see the bifurcation among indicators in the below panel of the chart. Two are suggesting that there is enough room for the NIFTY to rise further, while two are showing extreme high reading which can be resolved by pull back or sideways movement and remaining two volume based indicator are suggesting downfall, but difficult to expect the magnitude of fall.
Therefore, the only conclusion for now is to look for stocks that meet precise trading criteria and buy measured amounts with adequate sell stops.
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Pankaj