Market Outlook for the week 26th May to 30th May 2025 / CW21-2025
Weekly analysis of general market environment.
This post is an attempt to have an idea about general market health and to forecast what possibly can happen for the next week ahead. This is 49th post in this series. Check the last week outlook here..
As a technical analyst “I anticipate but confirm. I wish but only react.”
No holidays next week.
Global Markets
US market showed first sign of weakness since April, this week many key indices closed below last week’s low.
NASDAQ down 2.39%, S&P down 2.61%, DJI down 2.47%, RSP down 3.14%, RUSSEL2000 down 3.11% this week. VIX came down for last 6 weeks but this week went up flagging some caution signs up 29.16%.
European indices were down too, but FTSE was the only exception which was up 0.45%.
Dollar Index (DXY) down 1.85% after going up for 4 weeks, which is a good sign if it resumes in direction of break down which happened in April first week.
2 distribution day added this week and 1 expired. Now count is 4 in 23 days in Russel 2000.
Russel 2000 is trading at 21DEMA support now, this week’s low is crucial to observe below that short term trend may change.
Let see how our markets look like for now
General Market
Are we in a long-term Up trend or Down trend (The Trend)?
Where are we located in the trend (start, mid, extended)? How old the trend is?
We are in mid of down trend and in 2nd counter wave up within the down trend. The counter wave is extended now, a new LL from here on is a beginning of fresh 3rd wave down move.
We are in the Mid of down trend, which is 34 weeks old.
A down trend or correction phase can last for 60 to 72 weeks (15-18 months) in general. With 3 or 4 down waves. What market breadth Trend indicators showing? (Within 15% & 30% of 52W-H/L range count, stocks above 50 & 200dema counts etc..,)
Trend indicators are not confirming the above indices charts, we can see a clear divergence in terms of broader market indices crossing 21st Jan highs & CNX500 crossing Jan 3rd highs but trend indicators are still away from that level.
This divergence can be a normal thing at the start of bull markets but no bear market in the past ended in 30-35 weeks, least being 50 weeks. Hence, we must give importance for this divergence. This looks more vulnerable for a fall than rise.
Long term trend indicators are still in low levels confirms the bear trend.
Is the Trend in transformation phase?
After big gains last week this week market turned flat respecting the -ve divergence stated above.
But all key indices are still trending up we will wait for next one week to see if there is any structural changes in chart of broader market.
Check the divergences mentioned in below spread index, Chart is crossing the previous high it made in Jan 20 but few breadth indicators are still lower than the respective numbers. But number of stocks trading above their 200dema made a new high when we compare to May 19th high vs Jan 20th high. Which is a good sign. But the divergence between large caps and Mid and small caps is also a thing to take note explained below.
1. 1st Wave down -- 24th Sep to 18th Nov -- 55 days
2. 1st Wave up -- 18th Nov to 12th Dec -- 24 days
3. 2nd Wave down -- 12th Dec to 3rd Mar -- 81 days
4. 2nd Wave up -- 3rd Mar to till date -- 81 days
Correcting the last week's assumption of fresh 3rd wave down here as I expected a LH & LL formation which turned opposite.The divergence seemed like worked so far for a week, as explained last week this divergence lead to a fall in past scenarios.
Are we in Up/Down/Flat-swing within the trend (The Swing)? Where are we located in the swing (start, mid, extended)? How old the swing is?
Up swing started on 12th May backed by good news flow went to extended levels fast and ended on 19th May, We are now in a slow down swing which started on 20th May.
Early Down Swing, which is 5 days old.
What market breadth Swing indicators showing? (ADV/DEC ratio, New 52W-H/L count, UP/Down >4% in a day count, up 15%+ in 5days count, 10 & 20dema breadth counts etc..,)
Swing indicators are inline with above. Coming down in slow pace with some pause in between. Momentum is clearly down.
What types of stocks are moving (largecap, mid & smallcap, growth, junk etc)?
Unlike last week stocks stopped moving this week, lot of squats in episodic trades and earlier break outs pulled back. But selective sectors and stocks did well.
Notable observations in Sectoral indices and Thematic industries?
The same stance continued for almost all of the sectors. MEDIA is the one which improved.
Below thematic industries out performed the broader market. Industrial products and Materials, Auto Ancillaries, Textiles, Construction Materials, Electrical Power equipment’s did well.
EMS, Solar Panels, Micro finance, Glass products City gas, Electrical Appliances and Railways were among the losers.
Are the breakouts working in last few trades?
It was a mixed bag. Very selective names worked but many squatted.
Any event which can affect market coming week?
No particular scheduled events but any news can kick in anytime.
Summary
Trend: Mid Down,
Wave: Late 2nd counter Up,
Swing: Early Down Swing,
What possibly can happen next week? and what to do?
We are in an early down swing which is slow which giving reinforcing to 2nd counter wave up move.
If the down swing magnitude increases at the start of next week need to be cautious that might be a start of fresh down wave.
The -ve divergences b/w large caps and small caps & Indices and breadth indicators is materializing now which resulted in a down swing for a week. Need to see how the market reacts further.
The current down swing is happening with less magnitude which is good to take risks on long side.
We mark current swing confidence as 0.50, and cut the over all PF risk to 3% and we can continue to hold on to existing positions.
We can also look for short trades too as the fresh down swing starting but no anticipation sells, need proper confirmation with some catalyst of news.
Limit the risk per trade to 0.25% for short trades and over all PF risk to 1.00% at any point of time.
Long term trend is down which is not changed, so no positional bets whatever I will be risking will only be a swing trades with RR game.
To stay with the big picture need to do market scan regularly and be ready with watchlist on both long and short sides.
Thanks & That’s all for the week, Good luck. I will update in comments if any interesting development happens.
Disclaimer: This post is for my own record and not a financial guide or advice. I am not a qualified financial advisor nor an influencer, Please do your due diligence and contact your financial advisor before investing in capital markets.