Market caution emerges in February as Nifty faces rejection at peaks; USDINR at 83 Levels sparks concerns for equities

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JFM last year was a difficult period. A period that saw sustained downtrend and gloom. But all of that was forgotten many times over by the large waves of uptrend that followed the rest of the year. This was feared this year too, having entered the new year near peaks, but we have only gone from strength to strength with momentum not ebbing completely even amidst corrections. But as we start the second month of the year, caution has resurfaced, and this time, VIX has not fallen sharply enough after the budget announcements, as much as it usually does.

The sprint on Friday was exhilarating, but turned out to be brief, as it quickly lost momentum, having frozen in the face of the record peaks. This is a clear sign of rejection trade, and should ideally lead to a full reversal aiming the 21200s atleast again on Nifty, or a potential deep dive to 20800. Having said that we would draw some inspiration from the successful push above the peaks of 23rd and 30th of January both of which had seen heavy selling, even the run up did not find the momentum required to see a new record close.

We are pinning our hopes on the support clusters around 21720 or 21600 in a worst case scenario to allow bulls to regroup and avoid a full reversal that Friday had indicated. This would encourage us to retain our upside objective of 22450-550 for now. However, we are open to the possibility of extension of uptrend to 22750-23500, should momentum persist, but the present set does not offer enough reason to commit to it right away.

Nifty bank’s performance has been underwhelming when compared to Nifty. This is evident from the rejection trades appearing strong from the 46600 vicinity on Friday, which has acted as a fort for the bears atleast two times in January. Unlike Nifty which is closer to record peak, Nifty bank is about 5% away from its record peak. But this allows for a different formation for regrouping, and we hope that the 20day SMA at 45569 to arrest declines and attempt a rise towards 50000. Slippage past 45589, could expose 44000-42500.

Perhaps USDINR could throw better insights than the benchmark indices this time, as it is near the 83 vicinity, after dilly dallying near 83.2 for most part of January, with largely a positive stance, though bereft of momentum. The attack on 83 is important as it threatens a slide that could potentially revisit 82.78 that we saw very recently. If that unfolds we could mark a move away from ranges that have persisted through the year. That would also be a leading indicator towards a shift in momentum in equities too.

First published in Financial Express

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