Equity indices surge to new record high but bears might be lurking ahead of US Fed rate decision

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If Nifty 50 manages to float above 20,180. If unable to do so, 19,550 could emerge as a downside objective, but the prospects of 20,600 would continue to be very much alive, as long as 20,000 holds.

In the week before last, Sensex had broken above the stifling range that had held price moves since early August. But with last Friday’s push, Sensex has closed well above the previous record peak. This is an encouraging sign especially as it had appeared to be losing steam in the early part of the week. For Nifty, we had gone in last week with 20,230 or 20,600 as the upside objectives, and were reasonably satisfied with what Nifty came to achieve despite all traditional indicators blaring signals of being overbought. 

This has transpired on the back of low volatility expectations, as indicated by subdued VIX through the week. However, a shortened week ahead (Tuesday being a trading holiday), with Fed rate decision arriving in the middle of the week presents the ideal environment for bears to regroup, and challenge all those counters which had surged unchecked so far. We will test the premises of this construct by watching if Nifty manages to float above 20,180. If unable to do so, 19,550 could emerge as a downside objective, but the prospects of 20,600 would continue to be very much alive, as long as 20,000 holds.

Meanwhile, some of the smaller stocks in the Nifty Bank, like PNB, IDFC First and Bandhan bank have rallied about 15% more than their respective prices seen when Nifty last recorded its highest level on 20th July. Meanwhile, the 33% stocks in the index which contribute to the bulk of weightage in the index, are yet to cross their respective peaks, which have been one reason for index traders to remain expectant of larger gains shortly ahead. However, this is a circular argument, and we are reluctant to follow this, especially as Bank Nifty seems reluctant on approach of previous record peak, and RSI which had remained true to Nifty bank as an oscillator, unlike Nifty, is at extremes, suggesting an imminent pull back. We would be comfortable to resume the long bias on dips below 45,500.

USDINR appears to be gearing up for yet another attempt to push higher, despite failing miserably in its previous attempt. What continues to persist with upside bias is the fact that the pull back following rejection trades were contained above 82.78, which shall be the key downside marker. However, inability to scale 83.2 or a direct fall below 82.93 could be taken as an early signal towards weakness setting in again.

First published in Financial Express

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