Most short-term indicators have come into the buy mode but have not yet cleared their resistance zones
The Street sentiment was better last week than in the previous week, though the pace of Nifty’s rise was slower. The market breadth was relatively much better and most stock futures saw short-covering, leading to mark-to-market gains for traders.
The market’s movement post-the holiday season in the West indicates that all is not lost for the Indian market. The weakness in the dollar, after a long phase of strength, also contributed to the market’s rise last week. The dollar’s decline led to unwinding of short trade in emerging markets, most of which saw upward moves.
Billions of dollars have flown back to the US market in the last ten weeks. Going forward, the trend of reverse flow is likely to continue. From a short-term trading perspective, the pace of backflows would matter to all emerging markets, including India. Going by the moves of the rupee and Nifty, the Indian market may outperform other emerging markets by declining relatively less. So traders have to be cautious when taking large positional short positions.
Domestically, the earnings season would be important. Since the numbers would reflect earnings from the festive season, the results may not be as bad as many perceive. But management commentary accompanying the results would give an idea of how things had been in December and January. Bank results would be crucial in view of the surge in deposits in the last two months. Keep an eye on the trend in non-performing assets (NPAs) from the small and medium enterprise (SME) segment. Some banks have allowed borrowers to repay their loans in old currency loans. Some large banks have recovered a good part of their NPAs, especially from retail and the SME segment. So, select bank counters may see some up-move. Credit growth figures for individual banks would also have a bearing on the stock prices. If credit growth deteriorates more, net interest margins would be affected, and that would put selling pressure on stocks.
Coming to oscillator charts, most short-term indicators have come into the buy mode but have not yet cleared their resistance zones. The moving average convergence/divergence on daily charts is in the buy mode as it moves up in negative territory. Its movement into positive territory will further confirm the trend seen in the Nifty in the last ten trading sessions. The probability of this oscillator moving back into positive territory is high, since the buy signal had emerged on these charts after positive divergence—an indication that the recent bottom formed by the Nifty at 7,893 points may not be broken near-term. The 12-day rate of change (ROC) has moved into positive territory and it continues to move in tandem with the Nifty 50 index.
The 14-day relative strength index (RSI) is in the equilibrium zone and is moving in tandem with the Nifty. In this case, too, positive divergence was visible before the climb up started—another positive for the bulls. Macro-formations also seem to favour the bulls. The current round of upward moves in the Nifty started after a new bottom, not far from the previous one, was formed. Such bottom formations have a higher probability of sustaining.
As for short-term resistance and support levels, the Nifty is placed just below its 200-day moving average (DMA) of 8,279, which has been crossed twice, though briefly. So, it will be the third attempt now, so, the index has to stay above this level for at least three trading sessions, with a one per cent move in at least one session, for it to be considered a strong breakout. After this, the strongest medium-term resistance would come in the 8,560-8,600 range, the level from where the correction started. Indices tend to face a tough time when they come close to same levels.
The first reasonably strong support range for the Nifty comes at 8120; a clutch of moving averages are placed at this level. Long positions in Nifty futures should have a stop loss at this level.
It would be better for retail investors to stay with large-cap stocks and keep long positions hedged.
rajivnagpal@mydigitalfc.com
The market’s movement post-the holiday season in the West indicates that all is not lost for the Indian market. The weakness in the dollar, after a long phase of strength, also contributed to the market’s rise last week. The dollar’s decline led to unwinding of short trade in emerging markets, most of which saw upward moves.
Billions of dollars have flown back to the US market in the last ten weeks. Going forward, the trend of reverse flow is likely to continue. From a short-term trading perspective, the pace of backflows would matter to all emerging markets, including India. Going by the moves of the rupee and Nifty, the Indian market may outperform other emerging markets by declining relatively less. So traders have to be cautious when taking large positional short positions.
Domestically, the earnings season would be important. Since the numbers would reflect earnings from the festive season, the results may not be as bad as many perceive. But management commentary accompanying the results would give an idea of how things had been in December and January. Bank results would be crucial in view of the surge in deposits in the last two months. Keep an eye on the trend in non-performing assets (NPAs) from the small and medium enterprise (SME) segment. Some banks have allowed borrowers to repay their loans in old currency loans. Some large banks have recovered a good part of their NPAs, especially from retail and the SME segment. So, select bank counters may see some up-move. Credit growth figures for individual banks would also have a bearing on the stock prices. If credit growth deteriorates more, net interest margins would be affected, and that would put selling pressure on stocks.
Coming to oscillator charts, most short-term indicators have come into the buy mode but have not yet cleared their resistance zones. The moving average convergence/divergence on daily charts is in the buy mode as it moves up in negative territory. Its movement into positive territory will further confirm the trend seen in the Nifty in the last ten trading sessions. The probability of this oscillator moving back into positive territory is high, since the buy signal had emerged on these charts after positive divergence—an indication that the recent bottom formed by the Nifty at 7,893 points may not be broken near-term. The 12-day rate of change (ROC) has moved into positive territory and it continues to move in tandem with the Nifty 50 index.
The 14-day relative strength index (RSI) is in the equilibrium zone and is moving in tandem with the Nifty. In this case, too, positive divergence was visible before the climb up started—another positive for the bulls. Macro-formations also seem to favour the bulls. The current round of upward moves in the Nifty started after a new bottom, not far from the previous one, was formed. Such bottom formations have a higher probability of sustaining.
As for short-term resistance and support levels, the Nifty is placed just below its 200-day moving average (DMA) of 8,279, which has been crossed twice, though briefly. So, it will be the third attempt now, so, the index has to stay above this level for at least three trading sessions, with a one per cent move in at least one session, for it to be considered a strong breakout. After this, the strongest medium-term resistance would come in the 8,560-8,600 range, the level from where the correction started. Indices tend to face a tough time when they come close to same levels.
The first reasonably strong support range for the Nifty comes at 8120; a clutch of moving averages are placed at this level. Long positions in Nifty futures should have a stop loss at this level.
It would be better for retail investors to stay with large-cap stocks and keep long positions hedged.
rajivnagpal@mydigitalfc.com
