Nifty has to close above 10,950 points to trigger another round of short squeeze
The Nifty witnessed yo-yo moves in the entire five trading sessions last week. Intra-day volatility was pretty high, still none complained against the swings, as the index closed with gains or trended up by the end of the session. This saved traders with long positions from steep mark-to-market losses. The Nifty’s range-bound moves, even on days of extreme volatility in international markets, probably indicate that the index may break into the upward direction once this phase of consolidation is over. It does not appear now that the market is going top-heavy.
Some of the macro numbers released last week were below Street expectations. The industrial production number was down, but the IIP has been showing erratic trends for many months, with the economy getting adjusted to the GST system. But the average numbers have over the year been much the same, so the latest IIP number is unlikely to dent market sentiment. But the IIP falling to a 17-month low of 0.5 per cent does make a case for an RBI rate cut. Given that inflation is running low now, growth needs to be back in focus.
The earnings season kicked off with habitual early birds coming out with their numbers. Some results have come below Street estimates, but it is to be appreciated that some companies have come upfront with the hit in their balance sheets. IndusInd Bank, which had exposure to IL&FS, provided for a part of that exposure. The bank has made provisions for 20 per cent of its total exposure to the troubled IL&FS Group.
However, Bandhan Bank, which was already under financial pressure from the high cost of acquisition of a housing finance company, made full provisions for the exposure it had to the IL&FS. The market reaction to the two private banks was different. The IndusInd Bank stock moved up on the results day but started slipping from the very next day, as the Street was expecting that howsoever bad it might be, IndusInd would probably make full provisions for its IL&FS exposure.
In contrast, the Street liked the Bandhan Bank gesture of making full provisions, though its exposure to IL&FS was low compared to IndusInd Bank. Full provisioning removes an uncertainty from the bank’s future performance. But the stock continued its downtrend on Friday as well in a falling market.
As the earnings season progresses, the coming days will see more banks making provisions for IL&FS exposure. And the market will react on the basis of how these banks treat their exposure. So, traders have to be careful while trading on result days on stocks with exposure to IL&FS.
Most oscillator charts are still in a confused mode, moving sideways in equilibrium territory. The moving average convergence/divergence (MACD) on the daily charts is placed right above the equilibrium line without giving any clear signal yet. As the consolidation in underlying index is happening above its 200-day moving average (DMA), these charts may break in favour of the bulls.
The 12-day rate of change (ROC) is placed right above the equilibrium line, as it keeps moving in sideways direction with slight negative divergence.
Coming to short-term support and resistance levels, the Nifty needs to first cross 10,950 points on a closing basis to trigger another round of short squeeze. If the index breaks this level, all the bearish positions above the 11,000 level are likely to get shaken up, leading to further upward movement. In case the Nifty manages to cross that level, then profit booking by traders with long position will emerge at 11,250.
The first support for the Nifty would come at 10,630 points, after which 10,500 is a range the index should not break for the bulls to stay in the game. Beyond this range, the momentum would shift in the favour of the bears.