[Premium] Three Charts For The Week Ahead

JC Parets
January 31, 2022

We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.

This is that post, so let's jump into this week's edition.

Last week we focused on S&P BSE Dollex 100, BSE Utilities, & BSE IPO Index.

Let's move into this week's topics.

1.  The first chart we're looking at is S&P 500. This index acts as a good barometer for international market health. A couple of weeks ago, the index traded below the crucial support of 4,500. We have mentioned time and again how important these levels are with regards to the ongoing market cycle.

With last week's move, we now have a lower low in place. But a lower high hasn't made its way yet. The price recovered well and closed near the high of the week indicating the buyers and bulls took control in the latter part of last week.

If this trend continues and the price moves back above 4,500, the bullish market thesis will gain strength again.

2. The second chart we're looking at is Nifty 50 relative to Indian Government 10-year Bond Yield in the top pane and the Nifty 50 index in the bottom pane.

A rising ratio chart here indicates the stocks outperforming the bonds, which is also a risk-on indicator.

Investors want a risk premium in the equity market, so the ratio in an absolute outperformance region indicates a strong thrust when we zoom out.

On a shorter horizon (as seen in the box within the chart), the ratio is bouncing off its polarity support from February 2021 high. If the stock market is to go higher, we need to see the ratio at least pivoting, if not rising.

As long as the ratio holds above the support level, it adds to our positive outlook on Nifty 50 for an intact primary uptrend. Check out our latest post for more details about the market rotation we're witnessing.

3. The third chart we're looking at is Nifty Energy. The price is trading close to its highs and is making a run towards those levels. What's more noteworthy is the relative strength that's coming through in the sector. Take a look at the bottom pane. The ratio is trading at 8-year highs. This is definitely a good sign for Energy.

Sector rotation has brought Energy back to the forefront and this is definitely one of the spaces that should be tracked carefully for future leadership.

In our view, these charts will help set the tone for this week and provide us with information on how we should approach the market in the coming weeks.

Also, make sure to check out our other weekly post, "Trade Of The Week."

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team

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