Nifty above 16400 would aim for 16950-17200 range soon; RBI MPC outcome, US Fed decision, US NFP data eyed

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The 16460-400 region in Nifty will continue to be a catchment area for dips, and favoured view expects the same to hold for a two stepped uptrend to unfold, aiming 16950 first and 17200 subsequently.

Through the last week, bulls and bears traded blows, but 27th May’s break away from the month-long consolidation encouraged bulls to play a strong up move. Nifty’s sharp bounce back in March, after testing lows similar that of May also backed the surmise that an uptrend aiming the 200D SMA of 17269 could unfold. However, after a sizeable leap, albeit brief, mean reversion move unfolded on 2nd June, soon after testing the 60D SMA suggesting that bulls do not want to get ahead of themselves, given the event risks ahead, by way of RBI rate decision on the 8th of this month, as well as US NFP data, which serves as a leading indicator towards Fed decision later this month.

With Tesla’s potential layoff adding chorus to recession fears, and several investment banks preferring China over India at present valuations, the prospects of 17200 and more needs to be re-evaluated. The best gauge is to look at how traders have already positioned themselves for the weekend. Nifty call traders boosted their shorts in OTMs as far as 17300 and 17500 in the second half of Friday, which is a premium scalping play rather than a directional one, especially with a full week to expiry.

Further, VIX, a measure of volatility, fell 1.7% despite Nifty registering a 228 point fall from the day’s top and closing near the day’s low. Meanwhile, RSI of small caps are still below 50, suggesting there are no froth or overbought situations yet, which would have otherwise called for a panic liquidation. And, despite such a steep fall in Nifty, 67% of NSE500 stocks closed above Thursday’s high, suggesting that sentiments have not turned bad, just cautionary.

The 16460-400 region in Nifty will continue to be a catchment area for dips, and favoured view expects the same to hold for a two stepped uptrend to unfold, aiming 16950 first and 17200 subsequently. Alternatively, a slippage past 16140 will force us to switch sides, though our expectations towards such an outcome next week is low.

First published in Financial Express.