This is the weekly update on the markets and we will study the charts and see what sense we can draw from them about the current state of the markets.
The chart below is of the smallcap index. One can see the price on the top and the bottom windows is the momentum. As we can see that indicator in the bottom window is showing high readings, and we can see with the red circles marked that whenever we have had such high readings in the momentum it has been followed by a period of correction or consolidation. Of-course this is not a sure shot but it puts into perspective the heightened risk at this point in time. Typically the over-bought(or high) readings on momentum indicators signal a strong trend but they also point to either a time correction or in some cases a price correction based on where they occur during the course of the trend. On weekly and monthly time-frame such readings for a prolonged period of time can be followed by a reversal pattern which can signal the end of the trend. Fortunately for us that is not the case now. Hence we are perhaps looking at some near term volatility and also a minor pullback and a period of consolidation.