Tuesday we posted a mystery chart and asked you all to let us know what you would do. Buy, sell, or do nothing?
Most of you agreed that it looked like a structural breakout that we should be buying as long as prices are above resistance.
So today we want to reveal the full chart and why it’s relevant.
The original post was of an inverted daily line chart off the Equally-Weighted Nifty Financial Services Index relative to the Market-Cap-Weighted Nifty Financial Services Index.
The actual chart shows a massive topping pattern being completed in this custom index, signaling continued under-performance from the Equally-Weighted Index.
In other words, the participation to the upside in a sector that represents 40% of the Nifty 500 is narrowing…and that’s a problem.
Click on chart to enlarge view.
We’ve been writing about the sector rotation into Energy and IT, as well as the continued strength in Consumer Goods, however, all three of those sectors combined have are a smaller weighting than Financial Services and cannot drive the indexes higher without it.
We are still erring on the long side, particularly in individual stocks showing relative strength, but the “Tale of Two Markets” we’ve talking about continues as the “market of stocks” churns back and forth under the surface. If the major indexes are going to gain any meaningful traction to the upside, we need to see increased participation from Financial Services stocks while Consumer Goods, IT, and Energy continue to trend higher.
Thanks for reading and let us know if you have any questions!