Elections, as with other major world events, introduce a lot of new information that market participants need to digest. This often causes increased volatility as expectations are adjusted and buyers and sellers battle to establish a trend.
So far this week we’ve seen an expansion in the intraday trading ranges, but not much resolution in terms of overall trend direction.
Here’s what we’re keeping an eye on.
Below is a chart of the Nifty 50, which is attempting to break out to new all-time highs after gapping up earlier this week. Does it hold or do we need to consolidate further, allowing the many current divergences to resolve? We’re in the latter camp for the reasons below.
Click on chart to enlarge view.
Meanwhile, the Nifty 500 remains a “hot mess,” sitting smack in the middle of an 18-month range. This looks like a very different picture than the Nifty 50 due to the underperformance of Mid and Small-Caps. It remains a significant headwind for stocks in general.
Another significant issue is that the Nifty Financial Services Index is the only sector making new highs. Banks account for a third of the market, but they cannot continue to pull all the weight. We need to see rotation into IT, Consumer Goods, and Autos before a sustainable uptrend can form.
The next week or two of price action will help determine if our current, patient approach to the market is still valid or if we need to get more aggressive on one side of the tape or the other.
Our edge is in following price and its supplements, not news. If this breakout in the Nifty 50 is the start of a new long-term trend, we will have plenty of time to take advantage of it. For now, there are just too many mixed signals from our perspective to be making big bets.
Thanks for reading and let us know if you have any questions!