Before reading rest of today's blog post, honestly answer below questions:
- Will market continue to go up from here before correction?
- If YES how much more upside is left based on any data or hunch? Is it worth taking risk with real money?
- If NO then based on what data are we making this assumption?
Below Nifty weekly chart shows that market is in bull trend but anyone looking at this chart can figure it out. The key information is in the angle of bull trend in other words rate of rise. Market appears to have gone parabolic or vertically straight up from May 2020 till date, Isn't it!
So what needs to happen for this market to continue higher from this level and more importantly sustain the rise?
So what needs to happen for this market to continue higher from this level and more importantly sustain the rise?
- More stocks need to participate in the market rally in other words need to be Advancing
- More stocks need to making NEW HIGH for the rally to continue
Below chart is Nifty Advancing/Declining breadth indicator, observe the right side of the chart:
- NSAD line is declining and has already dropped below EMA(20) - check last time when such situation happened around Feb, Sept & Oct of 2020. Check out market analysis using NSAD.
- RSI was already showing divergence & has dropped below 50 mark suggesting be cautious
- MACD was already showing divergence & dropping rapidly but yet to cross zero mark
Trend Exhaustion Index is another breadth indicator which is ratio of New High vs Advancing Issues. Check out the last time such a situation played out during early part of 2020, followed by Sept 2020. Market barely made any significant gains but both scenarios were followed by market correction.
We are not saying that market cannot make a new high from current levels. However, likelihood or probability of making new high and sustaining current rate of rise is very low. The downside risk is much higher at current levels. If you are invested then have tight stop limit in place to avoid surprises. If you are not invested then stay patient for next low risk entry.
Remember, timing matters! Always have a prudent game plan in any scenario for a successful outcome.
Good Luck!
Remember, timing matters! Always have a prudent game plan in any scenario for a successful outcome.
Good Luck!