Crucial Week Ahead for the Indian Stock Market

Sat, 23 Jan Momentum Moves

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The market scaled new life-time highs this week but it was the bears who took control. The benchmark indices, Sensex and Nifty ended mostly flat for the week but the momentum was in favour of the bears.

For the last two weeks, we have seen the markets facing resistance at higher levels. The bulls have been showing signs of tiring. Momentum was low when the market was going up and high when the market went down.

I discuss this and a lot more in today's Momentum Moves.

Watch the video and share your thoughts in the comments section. I would love to hear from you.

The Week Ahead

Equities proved to be the best asset class in 2020. The market has started the year on a similar positive note..

For long-term investors, nothing has changed, and I believe they should continue to hold fundamentally strong stocks in their portfolios.

I have been interacting with many investors recently. One such investor is around 54 years old and investing in markets since 1995.

We discuss the markets every couple of weeks.

This week when I talked to him, his first question to me was "Should I trim my position and sit on cash?"

Well such questions can be in your mind too!

I simply shared a chart with him on Nifty and asked him, "Are you ready to take a hit of 5-7% in your portfolio?"

I had good reason to ask him this question.

If markets continue to rally till the budget or post budget, he might miss an opportunity.

I don't have an answer of how much higher the markets can go.

However, certainly trailing your portfolio in profits might be the best decision in the current scenario where Nifty has closed below the previous week's low since December 2020.

You might be wondering which chart I shared with him.

Please watch my Fast Profits Daily video to know more about this chart.

The bulls are in an exhausted position and the bears had an upper hand this week.

This can be witnessed by the volumes in the recent bearish moves. On the other hand, the bullish moves have happen on lower volumes.

We don't see any change in view for investors, but for traders, moves of even a couple of percent counts.

Nifty Futures Continuous Daily Chart

 

This is a daily chart of the Nifty. Every vertical line represents weekly data (Monday to Friday).

The volumes in the recent move has been consistently above the 20 days average for the bears for the first time since September 2020.

If you look at the week-on-week moves since November 2020, when Nifty was around 11,500, the bulls fought like lions and continued to rule the market.

This is the first week were we had 3 bearish days against 2 for bulls.

If you're still unconvinced that bears are taking charge, look at this chart.

right26606500

Divergence Between Nifty, Midcap, and Smallcap

 

In the recent momentum where the benchmark indices Nifty 50 has hit new all-time high of 14,753.55, we haven't seen contribution from Midcap and Smallcap indices.

This is surprising.

The lack of overall contribution is a red flag in the recent momentum.

It's too early to say for sure but this may be the sign of distribution.

Till we don't get any contribution, there are two possibilities-we continue to see diversion in Nifty 50 against Midcap and Smallcap indices and second, the bears attack with tanks loaded and consecutively, we see a closing below the previous week low.

One chart you should keep watch on is the Dollar Index. We discussed this in last week's Momentum Moves.

Conclusion:

Dalal Street is celebrating the new all-time high, but I think this week's high can turn out to be fake or a trap for traders.

The medium-term or long-term trend continues to remain bullish till we don't get confirmation of distribution.

But the bulls need to protect the recent low of 14,222 while the bears need more strength to break that level.

With a truncated week and futures expiry, the long rolls number in large cap stocks will be in the spotlight for further momentum in February 2021.

Have a great weekend and I wish you a Happy Republic Day!

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