Broad, range bound mode continues
The first resistance for the Nifty would come at 9,740, after which the zone of 9,850 to 9,890 could exert profit-booking pressure
An old dictum in the market says never fight a trend. So, for all the fears stalking the street, stay long if the market is moving upward, and do not try to predict when the trend will end. However, giving fears their due, have a stop loss on your long positions. And as the market moves up, keep increasing the level of stop loss. This will protect your profit.
After staying in a range too close to its 50-day moving average (DMA), the Nifty once again moved up. Still, the relevance of this moving average in this uptrend remains. The momentum normally visible when an uptrend start after a correction was missing this time. But it became clear last week that the bulls are not going to give up easily, not at least in the mid-cap segment.
Last Wednesday, despite the subdued trend in the Nifty, the mid- cap index and mid-cap stocks outperformed, though this lasted just one day, as the stocks again came under pressure on Thursday. But the fact that the midcap index could move up in a subdued market was an indication that plenty of money still lies on the side lines, ready to flow into the risky parts of the market.
Finally, the goods and services tax did started rolling. As expected, the market greeted it with a one percent gain. Importantly, no disruption has been reported through the week in any supply chain as has feared by the market.
News flows from the international market, however, was slightly mixed. The minutes of the US Fed meeting released last week indicated that some members of the Federal Open Market Committee were against an aggressive rate hike, as they wanted to wait for a clearer trajectory of inflation to emerge. This perhaps indicates that the US Fed will take into account what other central bankers do in the two months. Already some central banks have indicated they want to tighten their money printing machines. When that happens it will have an impact on the US dollar, as any tightening could make those currencies appreciate, thus, helping US exports. In all likelihood, the US Fed will wait for this currency resettlement to take place before taking an aggressive stand.
As we come closer to the start of the earnings season, the market may see some volatility in some sectors. This earnings season will be of particular interest on two counts: first, this will be the third quarter after the demonetisation event. So companies cannot any longer take refuge in the argument that demonetisation has impacted their earnings. Second, some sectors will do extremely well in this quarter because they pushed inventory into the system before the start of GST. Some sectors, however, couldn’t shift their inventory. So, there could be a sharp increase or decrease in the top line of companies, depending on the situation. Traders have to focus on the explanation that accompanies such results.
Coming to oscillator charts, the short-term indicators have taken support either right above the equilibrium line or right under the line. But the subsequent buy signal that has appeared clearly lacks the strength usually seen when a new trend starts. So, there is high probability that the index may stay in a range-bound mode.
The moving average convergence/divergence (MACD) on the daily charts is placed right above the equilibrium territory, as it comes into the buy mode once again, though this oscillator needs to cross some of its short-term resistance filters.
The 14-day relative strength index (RSI) is currently placed in equilibrium, as it still moves in tandem with the Nifty 50 Index, though in the short-term frame, this oscillator shows negative divergence, which points to short-term pressure on the Nifty.
Coming to short-term support and resistance levels, the first resistance for the Nifty would come at 9,740, after which the zone of 9,850 to 9,890 could bring in profit-booking pressure. In a corrective move, the Nifty would get support at 9,580, after which important support giving moving averages are placed at 9,520.
Again this time, keep an eye on what is leading the market. If the market is kept up by just one or two heavyweights, then don’t get overly bullish. It is better to look for market breadth. Take long positions in the Nifty only when the market breadth is positive in large-caps with good margins. Otherwise, it would be better to focus to on stock-specific opportunities, which would be plenty as the Nifty consolidates.
Rajiv Nagpal