Next Couple Of Months Are Likely To Be Volatile

The liquidity fuelled rally that took equities to heady and irrational highs in the first 3 months of 2021 seems to be showing signs of fatigue, with the momentum oscillator trending clearly downwards despite a valiant effort from the bulls.

Last week marked a break below the middle Bollinger Band or 20 WMA level on the weekly charts, signalling that the index may now be trending towards the 13,400 mark, where the lower BB seems to be settling.

Couple this with the fact that the index made a Doji Star pattern on the monthly charts in March, followed by a bearish red candle in April with just 4 days to go, and a deeper correction looks highly probable.

The technical view is certainly supported by fundamentals. The index has been irrationally overvalued for several months now, with central bank induced liquidity propping up risky assets against good sense. With COVID gathering steam once more, and the number of daily cases in India crossing 350,000, it would be naïve to believe that the rally will just continue against the odds.

The steep drop in other risk assets such as BTC, and the revival in Gold Prices, are further indicator that the risk-on sentiment seems to be hitting a wall, at least for now.

The next couple of months are likely to be volatile, with a downward bias. Investors are strongly advised not to make a beeline for stocks at every single dip. This is a consolidation phase where the markets could witness sharp drops with institutional panic selling on the cards.

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