Dalal Street week ahead: Knee-jerk fall or break-neck rally? Market faces its moment of truth

The domestic equity market witnessed one of its most volatile weeks in recent past as the indices oscillated back and forth in a relatively wider range before ending the week with modest gains. After facing downward pressure early in the week, the market turned positive on the last trading day. Nifty ended the week with gains of 128.25 points, or 1.14 per cent.

The seven-phase polling in the general election comes to an end this Sunday. Exit polls are scheduled to come out beginning Sunday evening, and the results are due on May 23, 2019. Given this, the market is likely to see one of its most volatile days in the coming week. It would, therefore, be of little value to analyse the market in a mechanical manner for the week ahead. Broadly speaking, the 11,000-11,100 zone would be an important support for Nifty. The outcome of the exit polls is almost certain to make the market start the week with a gap on either side. It is extremely important to note that, we are very differently placed at the time of election results this time around compared with that in 2014.

In 2014, at the time of election results, the market was about to complete a massive ascending triangle formation on the long-term weekly charts. With the favourable general election outcome, Nifty broke out of that formation and what followed was a multi-year uptrend. This year, we are placed at a juncture where Nifty has achieved its price targets resulting out of measuring the implications of a breakout.

Given this situation, we feel any euphoria that can follow a favourable outcome of the general elections will have limited impact. We may see Nifty rise steeply and form a fresh high, and this positive move will remain limited to a certain extent. On the other side, any pain caused by an unfavourable election outcome will result in comparatively much deeper pain.

In this special weekly note, we are not analysing Relative Rotation Graphs to check which sectors will relatively outperform the broader market. Given the impact that this once-in-a-five-year event has on the market, analysing sectors would make little sense.

Needless to say that market participants need to approach the market this week with great caution. We would strongly advise investors to refrain from taking aggressive bets on either side or keep adequate hedges.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

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