Rally in gold prices prima facie sending out bearish signals for equitiesBond prices are indicating the preference for equities has gone downNifty Smallcap index breaches the gap of the day of election results within a monthTime cycle correction suggests Budget could be a turning point for the marketThis week gone by saw the biggest speculative displacement in stocks like Jet Airways, which were fundamentally weak but witnessed spine-chilling movements on both directions.
The reasons Demand-supply mismatch, greed and fear, hopes and expectations a clear reflection of emotional responses from investors all at once.To add to it, some of the NBFCs joined the convoy.
Such volatility in debt-laden companies was unheard of, and was record breaking in a way.
Jet rose over 120 per cent in spite of having negative value for equity shareholders.
This is how equity markets behave at times.From a macro perspective, a massive rally in gold prices in international markets prima facie sent out a bearish signal for equities.
When investors become risk averse, thats the time they shift to gold and thats the time equities start falling.Though equity markets are currently not pricing in certain risks that the gold investors are aware of and have started to price in, and there will be a time when either one of them will be proved wrong.Bond prices, too, are indicating that the preference for equities has gone down.
NBFCs are likely nearing the end of the capitulation period, at least for now.
Piramal Enterprises had to sell its stake in Shriram Transport, which speaks a lot about the underlying crisis in the sector.
When such transactions happen, it shows that pain is at its peak and its culmination is imminent.
Just the way investors sell shares at the bottom, corporate investors also sell assets at or near the bottom.Event of the WeekDuring the week, something interesting happened with the Nifty Smallcap index, which breached the gap that it had formed on the day of election results.
Previously in 2014, it had taken two long years for the index to fill such a gap.
Surprisingly, the gap got filled within a month this time, which may be the precursor to an underperformance by the equity market going ahead.Technical OutlookNifty50 continued to correct with intermittent rallies, which was later met by declines.
Once the 11,600 level is broken, the next likely support point would be 11,400, which is also the gap that needs to be filled for the market to again begin a healthy rally.Time cycle correction suggests Budget could be a turning point for the market, which would require the market to take support at the lower trend channel.
Avoid trading in this corrective market.Expectation for the WeekNext week, the market will start speculating on Budget outcome, which usually gets magnified by the media, but stocks may not really see wild swings the way it happened this past week.
Global factors may affect the domestic market and any flareup in West Asia would prove a dampener for the equity market.Investors and traders are advised to maintain status quo and avoid highly volatile sectors such as airlines, NBFCs and other debt-laden companies.
From a valuation perspective, quality largecap stocks have now turned expensive after a massive rise in the past few months, and therefore, should also be avoided at this stage.The Nifty50 closed the week 0.83 per cent lower at 11,724.