Friday’s test of 24540 was the objective that we had set at the start of the week, but it leaves us in a dilemma as we were looking at the potential upmove as a dead cat bounce that would take a nosedive, once inside the 24540-660 region. Last week’s closing pyrotechnics forced us to take a fresh take on the trend.
While it took a week-long wait to achieve the objective which saw multiple attempts to push higher being hammered lower, none of the distribution led to downsides succeeding in penetrating 23975 either incidentally, due to lack of momentum which was a dominant theme in the week before last as well. VIX also fluctuated, ensuring that directional views suffered. But with VIX easing and momentum indicators strengthening, we are encouraged to drop our guard a bit and adopt a trend-following approach in the coming week. However, our objective for the time being is limited to 24900 as 64% of Nifty 50 stocks are trading above 20-day SMA as opposed to 30% on Wednesday, while only about 53% of NSE 500 are now above this key SMA as opposed to near 30% on Wednesday. We are inclined to believe that next week could see a broad-based revival in stocks, which may limit inflows into Nifty 50 stocks, potentially delaying the re-entry into the 25k band.
While it took a week long wait to achieve the objective which saw multiple attempts to push higher being hammered lower, none of the distribution led downsides succeeding in penetrating 23975 either incidentally, due to lack of momentum which was a dominant theme in the week before last as well. VIX also fluctuated, ensuring that directional views suffered. But with VIX easing and momentum indicators strengthening, we are encouraged to drop our guard a bit and adopt a trend following approach in the coming week. However, our objective for the time being is limited to 24900 as 64% of Nifty 50 stocks are trading above 20 day SMA as opposed to 30% on Wednesday, while only about 53% of NSE 500 are now above this key SMA as opposed to near 30% on Wednesday. We are inclined to believe that next week could see a broad based revival in stocks, which may limit inflows into Nifty 50 stocks, potentially delaying the re entry into the 25k band.
Bank Nifty waiting for the green signal
Bank Nifty meanwhile is yet to clear the wall of worry, but has a long room for upside, given the low base, and not just because it has started to register large gains. Significant challenges still remain, but for now, we will look for a break beyond 50800 to play the potential for a 1200 point upmove. Inability to float above 51165 will be a weakening signal.
Sectoral Cues:
Nifty Metal Index has been on a decline since June 2024 from the Widening Wedge pattern resistance of 10195. It has corrected to the pattern support of 8800 and is attempting to build a base for the bulls to regroup. The MACD histogram in the weekly time frame has shown early signs of exhaustion and the stock is trading well above its 50 and 100 week moving averages hinting at strength. We expect the index to move towards 9750-9970 in the coming weeks and such a move could be lead by stocks like Jswsteel, Tatasteel, Hindalco, NMDC and Jindalstel.
Nifty Financial Services Index has seen an Evening Star candle pattern in the monthly time frame which is considered bearish. Also, the MACD is about to break below the signal line in the weekly time frame hinting at more weakness in coming weeks. Shorter time frame charts however signal a bounce in the initial days of next week but it would be prudent to remain cautious on such pull backs. We expect insurance companies like HDFCLife, SBILife, ICICIPruli and banking majors like ICICIBank and SBI to remain under pressure and see higher level selling pressure. However, stocks like Axisbank, Bajfinance and Kotakbank, which are looking positive, could arrest big moves on the downside in the index.
Meanwhile, despite the large strides in Nifty IT, we are at the cusp of larger upsides in the sector. Since being at a pivotal point, we will adopt a wait and watch approach for IT.
First published in Financial Express
