Nifty must rise above 18,520 to resume uptrend, Bank Nifty resistance at 43,800; broad-based rally ruled out

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As we approach the year end, and especially after reacting to significant inflation readings as well as rate decisions, the major aspect worth reckoning would how trading volumes pan out in the next two weeks. Usually this is a period that is likely to see trading volumes tapering off. Thin volumes could still move markets though, but volatility expectation is low thought, with VIX already at multi month low, but there in lies the potential for surprise, though we do not see many events that may trigger the same. We will see how the upcoming US GDP and Durable good orders data weigh in given the prevailing hawkish bias. Another event that could play out in the short run, is a swing higher in Oil because the recent sell off brought the open interest in Nymex to near term lows that reduces the chance of a continuation of downtrend.

The prospects of an outright turn higher in Nifty is limited as more than 57% of the NSE stocks have already fallen below 20 DMA while 76% of Nifty 50 stocks have fallen below this important short term moving average. And they have not fallen deep enough to warrant a bargain hunting either. Banks are an exception though with only less than 10% of stocks falling below 20 DMA this week, and 80% of banks above the high seen when Nifty hit all-time peak. So, while a broad-based rally may be ruled out, a few sectors are likely to stand out. This is also echoed in the F&O space with only less than 20% stock showing a directional build up. Rest are showing unwinding.

With these in perspective, 18,300-18,100 region will be a consolidation band for Nifty, with 17,900 to be the likely downside objective, should Nifty find it difficult to float above 18,370. A direct rise above 18,480-520 would be required to announce the presence of bulls. Meanwhile, Bank Nifty may have seen a temporary top at 43,800. However, should it take support on dips to 42,500-41,800, expect an extension in uptrend aiming 47,000.

First published in Financial Express

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