Is this a pause before the Storm?

Is this a pause before the Storm?

Markets this week have been relatively flat and it looks like they have exhausted their up move and could be ready for a downward drift soon. Generally, markets take the support of an external event to begin their correction. However, there is a stark divergence in the small cap and frontline indices. In the last 10 days, the small and mid-cap indices have refused to go up along with Nifty50, which means that the fall is coming soon. Investors are therefore advised to remain cautious and take decisions wisely only after considering all the fundamental and qualitative factors about companies, they can also consider booking profits at current juncture.Currently, the Nifty500 and S&P 500 index share the same anatomy which is rare but important for us to understand the way forwardas India does have the history of mirroring US markets.The Trump-Xi trade war and Trump's two key men found guilty, rising dollar and rising interest rate scenario does not augur well for global financial markets - these reasons have made investors weary of finding the right avenue to park their money and place fresh bets. This pause-like feeling in the market will soon end and markets will begin their journey lower.

Events of the Week:

On one hand, there was news that BG Asia Pacific Holding reduced its stake in MGL by a whopping 14%. This might be a good opportunity to accumulate this secular business for the long-term as BG Asia may have other compulsions to sell;on the other hand, when insiders such as the experienced Tatas themselves increase stake in their own company it can be assumed that the worst is over for a company like TaMo. Tata Sons increased its stake in Tata Motors by acquiring Rs 2.61Crs shares from the market recently which might again be a good opportunity. Although both the promoter actions are contrasting, investors must assess each event separately, but both offer an opportunity to accumulate.

Technical Outlook:

Broader barometer Nifty 500 index has made a double top indicating that the odds of fall from here are far higher than a rise. Even US market's benchmark S&P 500 reflect the same anatomy of double top which indicates that more often than not the markets are headed downwards. In case a failure on the upside occurs; this would further confirm the probability of a fall in the indices. And once the fall begins it will be across the board. Traders are advised to keep a trailing stop loss for positional trades at 11300 in Nifty50 and for short term traders a trailing stop at 11450 would suffice and not to initiate fresh long at these levels.

Expectations for the Week

At present, markets are in a state of confusion albeit hesitant to move in one distinct pre-set direction. Credit Access Grameen's poor opening indicates that markets are weak. However, such situations often arise but they will be resolved soon and the markets will marktheir direction. We expect markets to remain under pressure in the broader sense with the internal strength having weakened given that there is a huge divergence in the small and mid-cap shares compared to the large cap shares. On the sectoral front, the private banking space looks weak and could be shorted. Similarly, realty, metals also seemready for a downward drift hence it is advisable to either book profits or short them from a short-term perspective.Markets closed this week at 11557.10 up by 0.75%.