[Free Chart of The Week] Reliance Breaks Out, But Market Still Lacks Energy

JC Parets
January 21, 2019

This past week during our first Conference Call of 2019, we discussed the continued lack of direction in the indexes and how the relative strength in Financial Services and Consumer Goods stocks was being offset by the weakness in IT and Energy.

By Friday we finally saw some rotation back into Energy, but there are signs that the major indices won't be off to the races just yet.

While the Nifty Energy Index hasn't cleared its recent trading range yet, its largest component at 60%, Reliance Industries has broken out to the upside and should drag the sector index higher as the other components stabilize.

Click on chart to enlarge view.

While the breakout in Energy is positive given its 12% weighting in the Nifty 500, it's important to note that it's coming at the expense of other sectors.

As last week progressed, we saw some selling in stronger areas of the market like Financial Services as momentum wanes at its recent price highs, as well as weaker sectors like Autos and Media accelerating lower.

If we start to see failed breakouts in leaders like ICICI Bank, Axis Bank, Hindustan Unilever, Wipro etc. that's a problem!

For the broader market to advance, we need participation from the four largest sectors (Financial Services, Consumer Goods, Energy, and IT) all at once, otherwise the theme of weakness in one offsetting strength in another will continue, leaving the indexes stuck in the mud.

The relative strength we're seeing in Emerging Markets, particularly the BRICKS, continues to suggest an upside resolution in the Nifty 50 and 500 is the higher probability outcome, but the timing is unclear.

Individual stocks continue to offer the best reward/risk opportunities until the indexes begin to trend in one direction or another. In our Q1 Playbook and Members-Only Conference Call we discussed the best trade setups on both the long and short side.

For access to the Q1 Playbook and January Conference Call Recording, start a 30-day risk-free trial or sign up for our "Free Chart of the Week" to receive more free research like this.

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

Allstarcharts Team

Filed Under: