[Premium] Three Charts For The Week Ahead
All three of those factors deteriorated further last week and will be a headwind for this week too, in addition to the three other factors we're discussing below.
1. The first chart we're looking at is Crude Oil. We wrote about this for our US subscribers late Friday afternoon as an emerging risk factor for risk assets in general, including Indian stocks.
Prices have been consolidating below resistance at 3,200 while momentum diverges and a declining 200-day moving average sits overhead. The fact that prices have been unable to push above this level in the last two months signals to us that sellers may be taking control. If Crude Oil is falling, then that will be a headwind for risk assets overall.
Click on chart to enlarge view.
2. The second type of chart we're watching are cyclical names like Indian Hotels, which are a barometer for market participants' sentiments towards the sectors that have been hardest by the Covid-19 pandemic. Hotels, Airlines, Entertainment Venues/Companies, etc.
Indian Hotels is testing a key level at 75 and threatening to break down once again. Rotation into these areas was going to lead the market next leg higher, but we're not seeing that and instead, they're leading to the downside. Fresh lows in Indian Hotels and the stocks like it would be a major headwind for Equities as an asset class.
3. The last type of chart we want to focus on are those like Bharti Airtel. These stocks were leaders, but are now faltering.
In a strong environment, we'd be seeing stocks like this break out, consolidate, and then break out again. Instead, Bharti Airtel broke out, consolidated, and is now threatening to resolve that consolidation to the downside. The more leading stocks that follow its lead and break down instead of out, the worse the overall market is likely performing.
In our view, these charts will set the tone for the coming week (in addition to those from last week).
It's also worth noting that the weight of the evidence is slowly shifting towards a more choppy environment from stocks in the coming weeks and months. On the long side, we want to own the strongest stocks and on the short side, we want to sell the weakest stocks.
At the index level, we'll likely see choppy action so we want to focus on individual stocks where the reward/risk is skewed in our favor.
Make sure to check out our "Trade of The Week", which is a short in the Financial Services Sector.
Thanks for reading and please let us know if you have any questions.
Allstarcharts Team