Nifty 500 Index EOD chart

refernce lines indicates unfaded gaps since Mar 2016.

Nifty 500 is showing increasing signs of Emotional Buyers market as unfaded gaps gets exponential since the year 2016. Since Mar2016 CNX 500 had seen a total of 41 gap up and out of that 12 remain unfaded which in other words we call it as exponential gaps.

Exponential Gaps indicates momentum buyers are piling on to the trade at every gap ups. Animal Spirits lifts the market higher and higher thereby creating a euphoric environment. Too many animal spirits are dangerous for the trend persistence and the reversal odds are high.

CNX 500 Yearly Price Distribution

Year to Date CNX 500 had generated 15.2% returns. Financial Services, Consumer Goods, Energy, IT and Automobile sectors contributes more than 70% of the Nifty 500 free float marketcap. Similar Exponential Gap are visible in Nifty 100 and Nifty 200 as well which makes fresh investments possess increased risk as the risk-reward aint going to favor investors in the medium term.

Why does that Matters?

It matters a lot from a short term or medium investors perspective. An Emotional Buyers market is sort of overbought market where an short term/medium term investor rarely benefit in the given scenario. statistically, the odds of closing the gaps favor a lot. Chasing the trend as current juntion might not be a wise decision though.