While trading in stocks is itself a risky game, at times conditions are such that the probability of a trade ending up in losses is very high. This is the condition of the market right now, where both overnight and intra-day volatility is taking a toll on traders. It is very likely that this situation will prevail for some more time as the market grapples with the headwinds coming in form bad news on both domestic as well as global fronts.

For this week, it will be more of a holiday mood on the Street, which may largely mean lower volumes, except for a few stocks where there could be a phase of short covering and rollovers to the January series on the expiry of the December series of derivative contracts. Unlike past years, when the last week of December used to see stock-specific bounce on many mid-cap counters, mid-cap stocks are unlikely to see any big gain this time around. Instead, they are likely to remain under pressure as a number of them are going to see large cash-based selling that keeps emerging from one or the other institutional investor.

As far as news flow is concerned, there was a positive surprise on the domestic front, which came in the form of a rating upgrade by Moody’s Investors Service. This was a big trigger, which led to short covering both in equity as well as currency markets and made the indices move up very sharply in a single session. But it remains to be seen whether it will help stem the selling pressure that a number of sectors have been witnessing of late. Even food inflation, which has started easing recently, saw further softening as the base effect continued to show its impact on the numbers. The fact that the inflation trend has been on expected lines for the Reserve Bank of India is a big solace for the market, which has been eagerly waiting for the interest rate cycle to turn around so that it takes some pressure off the balance sheets of a number of companies across sectors.

This week we are once again going to see some sort of a civil agitation. While it has nothing to do with bottom lines of companies, it would be seen as a big macro-event by the fund managers sitting in Wall Street, and it can even make them rethink on their investment strategy for the Indian market. Luckily, the agitation this time is taking place at a time when the west is on a holiday and it may not have much of an impact. But if it continues, it is surely not going to help the cause of the bulls.

As far as news flow from global markets is concerned, for a change it was more on the positive side, as the macro numbers from the US were better than expected and once again they raised hope that some quantitative easing is on its way. The European Central Bank’s move to ease money flow to European banks surprised many in both money market as well as equity market, and this was an indication that some more steps may be ahead as far as Europe is concerned.

Coming to technical charts, the indicators are once again attempting to come into the buy mode after an upward move for two sessions this past week. In fact, some extreme short-term indicators like the stochastic and William%R are already in the buy mode, but the big picture still indicates weakness. The average and trigger lines on the daily moving average convergence divergence (MACD) charts are once again converging with each other in an attempt to give a buy signal. This is coming after the indication of a divergence on these charts.

On the 14-day relative strength index (RSI), the charts still give a weak signal, but there is a high probability that some positive divergence might appear on this chart over the next few sessions. Slightly longer-term charts indicate that while the trend is still downward, there is a high probability that it will see a phase of capitulation in case there is a sharp fall. On weekly charts, this MACD is placed in the negative territory. But one can see the first signs that these lines are going to converge soon.

Coming to support and resistance levels for Nifty in the short term, the first important resistance would come at the 4,800 level, where some of the short-term moving averages and the short-term downward sloping trend line are placed. After this, Nifty needs to cross the 4,980 level to begin any strong upward move. However, given the strong resistance and in the absence of any advance breakout signal that normally emerges ahead of any intermediate rally, chances of Nifty breaking this resistance appear bleak at this point of time. Still, an advance breakout signal may emerge if the strength seen in the market this past Thursday is witnessed once again.

As far as support levels are concerned, the first support would come the 4,610 level. In case Nifty breaks this support, it could slip further and move below the 4,550 mark over the next few weeks. Keep a watch on the market breath and also on the banking stocks to see on which side the wind is going to blow.

rajivnagpal@mydigitalfc.com