Momentum Problems Remain
There have been a number of reasons for our caution, such as weak participation from sectors outside of Financials, as well as momentum and breadth divergences dating back all the way to March.
Today, those issues remain largely the same despite some rotation into areas like Infrastructure, Public Sector Banks, Realty, Energy, and other areas of the market. With that being said, Large-Caps continue to drive this recent move higher and we're seeing a lot of bearish momentum divergences emerge as leading indexes/sectors/stocks make new highs.
Let's start with the Nifty 50, which managed to exceed its April highs briefly, but momentum made a much lower high and now sellers are stepping in.
Click on chart to enlarge view.
It's not just at the broader index level. Here's the Nifty Bank Index showing similar characteristics.
If you think the largest sector of the market exhibiting waning upside momentum is a problem, then it should also concern you that every Nifty sector/industry index we track is exhibiting a bearish momentum divergence or has momentum in a bearish range.
These are not characteristics that support higher prices, which is why we think that tactically it makes sense to continue exercising patience.
Here are some examples of stocks from different areas of the market showing how wide-spread this issue is...starting with DCM Shrirarm Ltd.
Bharat Petroleum Corp. also confirming a failed breakout as momentum diverges.
State Bank of India was unable to hold its breakout and is backing and filling toward support at 316.
Just Dial Ltd. couldn't even reach its first upside price objective before buyers started becoming exhausted.
Kotak Mahindra is just one example of the many Financial Services stocks meeting our price objectives on the heals of weaker upside momentum.
While the structural trend in India is still higher on an absolute and relative basis, like many other equity markets around the globe, the weight of the evidence continues to suggest we're likely to be stuck in a sideways range in the near-term.
Until these momentum divergences work themselves off through time or price and we start to see broadening upside participation from different sectors and market-cap segments, it's going to be tough for Indian Equities to trend higher as a group.
Until then, Members can reference our list of Trade Ideas and contact us if they have any questions before our next blog post or our Members-Only Conference Call coming up in a week or two.
If you enjoyed this post and want access to all of our premium research, start a 30-day risk-free trial or sign up for our "Free Chart of the Week" to receive more free research like this.
Thanks for reading and let us know if you have any questions!
Allstarcharts Team