Risks Of A Substantial Retracement Far Outweigh Any Potential Upsides At This Point

The liquidity fuelled rally continued last week, with the NIFTY rising another 200 odd points, albeit amidst growing concerns around valuation multiples, and increased volatility.

Monday’s weak opening may point to early signs that the “walking the band” pattern that the index has been demonstrating on the weekly charts for the past 5 weeks is poised for tapering off.

With the index trading at a 37X price to earnings multiple now, it may be safe to say that a very healthy recovery in 2021 is already well priced into current levels. There would need to be a material upward revision in FY23 earnings forecasts, in order to justify a sustainable upside from these levels.

The fact that the monthly candlestick has sliced past the upper Bollinger Band level now, also doesn’t augur well for the markets at these levels. Long positions should be avoided at all costs. Disciplined asset allocation is a must. FOMO induced purchases at these levels will almost certainly have a poor outcome.

The risks of a substantial retracement far outweigh any potential upsides at this point.

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