The market scaled new life-time highs this week, but it was the bears who ultimately took control. The benchmark indices ended mostly flat for the week, but the momentum was in favor of the bears.

For the last two weeks, we have seen the markets facing resistance at higher levels. The bulls have been showing signs of tiring. Momentum was low when the market was going up, and high when the market went down. I discuss this and more in today's Momentum Moves.

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The Week Ahead

Equities proved to be the best asset class in 2020. The market has started the year on a similarly positive note. For long-term investors, nothing has changed, and I believe they should continue to hold fundamentally strong stocks in their portfolios.

I have been interacting with many investors recently. One such investor is around 54 years old and has been investing in markets since 1995. We discuss the markets every couple of weeks. This week when I talked to him, his first question to me was "Should I trim my position and sit on cash?" Well, such questions may be on your mind, too.

I simply shared a chart with him on Nifty and asked him, "Are you ready to take a hit of 5-7% in your portfolio?" I had good reason to ask him this question. If markets continue to rally until the budget or post-budget, he might miss an opportunity. I don't have an answer of how much higher the markets can go.

However, trailing your portfolio in profits might be the best decision in the current scenario, where Nifty has closed below the previous week's low since December 2020.

The bulls are in an exhausted position and the bears had an upper hand this week. This can be witnessed by the volumes in the recent bearish moves. On the other hand, the bullish moves have happened on lower volumes. We don't see any change in view for investors, but for traders, even small moves count.

Nifty Futures Continuous Daily Chart

This is a daily chart of the Nifty. Every vertical line represents weekly data (Monday through Friday). The volumes in the recent move have been consistently above the 20-days average for the bears for the first time since September 2020.

If you look at the week-on-week moves since November 2020, when Nifty was around 11,500, the bulls fought like lions and continued to rule the market. This is the first week where we had three bearish days against two for the bulls. If you're still unconvinced that bears are taking charge, look at this chart.

Divergence Between Nifty, Mid-cap, and Small-cap

In the recent momentum where the benchmark indices Nifty 50 has hit new all-time high of 14,753.55, we haven't seen any contribution from Mid-cap and Small-cap indices. This is surprising. The lack of any overall contribution is a red flag for the recent momentum. It's too early to say for sure, but this may be the sign of distribution.

Until we see noticeable contribution, there are two possibilities that we forecast: we will continue to see diversion in Nifty 50 against Mid-cap and Small-cap indices. The other possibility is that the bears attack with tanks loaded and we will see a closing below the previous week low.

Conclusion

Dalal Street is celebrating the new all-time high, but I believe this week's high can turn out to be fake or a trap for traders. The medium-term or long-term trend continues to remain bullish for as long as we don't see confirmation of distribution.

The bulls need to protect the recent low of 14,222, while the bears need more strength to break that level. With a truncated week and futures expiry, the long rolls number in Large-cap stocks will be in the spotlight for further momentum.