Warning signs in the headline indices after making record highs

A couple of key indices are making some interesting patterns as the markets make all time highs. As technical analysts we keep looking at the market internals to judge the health of any uptrend. Of late a couple of interesting charts have come up which show that the current up move is not healthy and we should be careful to make any fresh commitments

Nifty and midcap divergence

From the above chart we can see that while the nifty has made a new high the midcap ended has failed to do the same. Such action after a period where the midcap index was actually outperforming the nifty is a bit of a concern. Generally such pattern lead to either a correction or a consolidation. Given the nature of the up move that we have here, we could actually get a considerable correction. Hence any one looking to make a long commitment should be doubly careful.

Russell 2000

The above chart shows russel 2000 index which is a small cap index for the US equities, We can see the emergence of the bearish pattern which does not augur well for the broader equities. If we see a correction in the US equites we are sure to get a correction in the Indian equities market as well, especially the small and the midcap indices which have so far outperformed the Nifty during the last 5 months or so.

Moving on we are looking at strength in the Pharma stocks. Another stock has given a breakout and the chart for the same has been posted below. Stock is Syngene International.The stock has given a technical breakout and looks to be heading higher based on the principles of technical analysis , though the behaviour of the broader market is a matter of concern.