Nifty to open week on cautious note, uptrend target at 18300; Bank Nifty target seen at 42700

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Bank Nifty appears more positive, and we are inclined to play a 42,700 move, unless 40,750 gives way.

The significance of 200DMA was on full display in the week before as a panic driven selling just short of the key level, prompting an upswing that has continued through these days, despite several attempts to derail it. This was aided by relief rallies in Adani group stocks, as well as other related segments and stocks which had sold off on fearing exposure to the group stocks. Positive reports on some of the group companies, RBI’s report on banks etc. also added to this upswing.

Usually, the upswings that take off after bouncing from the 200DMA stretch only along a path of least resistance. This was evidenced in the closing days of last week, as the upside momentum stalled after Nifty came within touching distance of the budget high of 17971. Further, through the week, rate rhetoric turned incrementally more hawkish, mostly driven by firm US jobs data. This ensured that while Nifty pushed higher, until stalling on Friday, the trading range became narrower, with VIX falling below 13.

Volatility, or the lack of it, would be a key factor that traders would have to face in the coming week. From a 20-day average trading range of 2.6%, the Nifty 50 stocks saw an average trading range declining to 2.3%. Among the stocks in the FnO segment, this metric declined from 2.9% to 2.4%, confirming that the range expectations of active traders have eased. This decline was not very visible in the small cap segment though, with the 20day average range falling from 3.3% to 3% only and from 3.1% to 2.9% among midcaps. The buzz in the midcaps were thanks to good Q3 earnings, while small caps drew energy from addition of 23 new small caps to the MSCI India Domestic Small cap Index.

The rejection trades that unfolded after peeping close to the budget high, prompts us to open the week on a cautious note. We were looking for a push beyond the same, in order to extend the ongoing uptrend’s target to 18,300 but will be looking for performance near 17,795 before playing the same. However, downside moves may not gain momentum unless below 17,580. Meanwhile, Bank Nifty appears more positive, and we are inclined to play a 42,700 move, unless 40,750 gives way.

First published in Financial Express.

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