Market enjoyed an awesome rally which started in May 2014 after the elections. It offered few shallow pullbacks along the way BUT next few days/weeks are crucial which shall decide if this pullback turns into a correction. Whats your game plan?
Pullback is clearly visible in the chart below where Nifty is closing in on MA(100) while MA(100) remains well above MA(200). BUT the McClellan Index appears to be rolling over, it was moving flat earlier and now appears to be tilted downwards. It shall soon cross EMA(59) suggesting more caution, BUT WHY? McClellan index measures number of advancing stocks compared to declining stocks. When more stocks are declining then McClellan Index goes down and vice versa. Now, one would think that when more stocks are declining, market should also go down BUT that is NOT the case always, BUT WHY? Remember, any index comprises of a subset of stocks and NOT all stocks trading on BSE/NSE. Hence market can keep rising if that subset keeps rising where as other stocks keep declining. Just something to be aware about!
Daily Nifty chart below tells us that market is barely hanging onto MA(50) line as well as dotted trend line shown in red. Will the MA(50) support hold!!! The next support is near 7400-7500 area followed by 7000-7200 area near MA(200). A bounce can be expected here and hence next few days/weeks are crucial.
On weekly chart below, it is quite clear that WMA(10) support is broken.
So whats happening with the market? Lets connect the dots:
What does it mean for our Investments?
Market currently in pullback mode, be wise and cautious...
- Rapid gain in Dollar (approx. 5%) - Capital moving into US from Europe and other parts of the world
- Weakness in emerging markets - Mainly due to fears about China and Middle east
- Increased volatility in US markets - Drags our market too
- Current political scenario - Just another reason for the markets to take breather
What does it mean for our Investments?
- Mutual Funds - If invested in equities then remain invested and also no reason to discontinue SIP. If in cash/liquid funds/FDs then have patience and wait for right opportunity. If market starts rallying from current level then this can be low risk entry.
- Stocks - ONLY invest in convincing patterns BUT do not forget STOP LIMIT as many stocks are NOT showing good patterns. We hope our trade size calculator helps you identify your risk per trade. Also check our watch list which might help you to identify right stocks.
Market currently in pullback mode, be wise and cautious...