Weekly Market Recap

Last week, I wrote that “false breakout often followed by above-average price trend in the opposite direction of the original signal”.  And as I expected, the market (Sensex and Nifty) started off in negative territory on Monday and continued to drift lower for all the five sessions of the week. The false broke-out was above 11000 on Nifty (refer my last blog).

In the week gone by, the benchmark Sensex was down by 737 points or 2% to close at 35808 and Nifty lost 219 points or 2% to settle at 10724.

Current Outlook

Although, Nifty continued to drift lower for the all five days of the week, still we haven’t seen any major technical damage on Nifty as the downfall stopped precisely in the vicinity of previous lows ( see the chart below) which acted as a support so far. The rectangle formation is intact. The nice recovery late afternoon on Friday appears to be positive and constructive in nature as it bounced-off from the base of the rectangle. Since November, Nifty is in trading range of 400 points (10600-11000), but market breadth is deteriorating severely week after week which is not a good sign, in fact it is quite alarming and dangerous.

This week, specially on Friday we saw fresh and heavy selling in pharma stocks after a long period of consolidation. Most of the large pharma stocks were down by 3-7% in single session that suggest weakness is spreading to other areas of the market. On Nifty, the dominant feature is the trading range that has contained prices for almost 3 months, however, few stocks within Nifty is persistently declining for last 3 months they are down by 20-30% or more. Among Nifty constituents, there are 10 stocks which have a weightage of around 50% and still trading at close to their life-time high. This doesn’t mean a selloff is bound to happen in these stocks, but surely I am analysing them closely and found some weakness among them at higher level.

This is not an inspiring configuration and could lead to corrective action. Hence, outlook is becoming weak after week.

Conclusion

The broader market is persistently quite weak for last few months based on market breadth and their repercussion is now being witnessed on Nifty and Sensex. Although both Nifty and Sensex has been irrepressible and innocuous–it starts selling but stopped at the lower end of the range and bounced-off. But this feature is over-extended, sooner or later both Nifty and Sensex has to come out from their trading range, once that will happen it may cause a ruckus. Hence, caution is warranted.

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

Be alert..!; Be a Savvy Investor..!!

Pankaj