[Premium] Three Charts For The Week Ahead

Last week we focused on EURUSD, Nifty IT, Adani Index

Let's move into this week's topics. We have big, important moves to track this week.

1. We place greater emphasis on the overall performance of individual stocks rather than indexes. The chart shown depicts the median performance of 1,700 U.S. stocks. It's calculated using an equal weighting and geometric average, which reflects the price of the median stock.

This chart is trying to break through a significant level, reaching its peak in 2018. Observe how this level aligns with the peak from August and the upper limit of a bearish to bullish pattern reversal. This means the median stock is rising and reaching new heights. Additionally, the index is showing signs of being overbought, as the momentum supports the recent price movement. The reclaiming of this critical level by the median stock is a significant event for the broader stock market and suggests that the average stock may now be headed towards higher prices. Going ahead, it would be a key level to keep an eye on.

Click on the chart to zoom in.

2. The Second chart we're looking at is Nifty 50 and Nifty 50 relative to Nifty Smallcap. The Nifty index has been trading below the crucial Fibonacci resistance level for over a year. The market can be divided into two categories:

1. Outperformance of Smallcap stocks compared to Largecap, which occurs after a substantial market correction with broad participation from all sectors/stocks. This signals an increase in market risk appetite.
2. Outperformance of Largecap stocks compared to Smallcap, which occurs after a mature market phase with a significant correction in smallcap/microcap stocks while large-cap names perform relatively well. This is the current situation, following Nifty 50's all-time high in October 2021. We can expect this selective move in stocks until we have tapered risk appetite for small-cap stocks. 

We track this ratio to assess market risk appetite, and the current trend favours large-cap stocks.

3. IT and Metal sectors often have a clear trend of underperformance and outperformance. A strong performance in IT reflects a positive attitude towards growth companies, while metal sector performance signals demand for base metals and hard commodities. Currently, IT is lagging behind Metals, and the ratio is making lower highs. If the IT sector breaks out of its downward trend, it would indicate improved performance in IT stocks.

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

Also, 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