Watch for significant moves in Nifty and Bank Nifty as the market braces for new trading range. Explore the metal and pharma sectors now!
Let’s start with what the FIIs have been up to…
The record-high shorts that FIIs have been holding in the index futures, shows no sign of unwinding. At least not yet. Neither the benign volatility nor the age of the shorts has been enough to force a change in the FII’s stance. Last week there was a mild off-loading of shorts, but at 84%, it is still a mighty figure. Clearly, RBI’s rate cut has had no impact on their stance and is suggestive that this is a stubborn position that will either need a full-blown downside, or a very surprising positive event in order for short covering.
February is usually a weak month
If one were to look for signs, February does not offer much hope. But given the fact that October-November-December had seen significant selling, February month’s historical trends need to be seen in a different light. Perhaps lending hope that revival prospects can still be held, despite the swing higher from January lows, so far. The potential for a broad-based recovery move is also supported by the fact that about 60% of the NSE 500 constituents closed at least 1% above their respective lows on Friday. Moreover, even as most indices closed in the red on Friday VIX, an indicator towards volatility fell 3.4% to well under 14, suggesting traders are less fearful now.
Expect large moves in Nifty and Bank Nifty
While markets have had the opportunity to react to the RBI rate decision, largely positively, it is yet to react to the Delhi verdict. While it may be an inconsequential political mandate, but it would be instructive to see how sentiments can influence market behaviour, given the fact that indices have been looking for cues to further the recovery rally that has been on since late January.
Though Friday ended with Nifty in red completing three consecutive days of descent, favoured view sees it as an acknowledgement of the importance of the 50 SMA from which the turn lower started. Also, the swiftness with which bargain buying unfolded in the dying hours of Friday, ended the descent at 38.2 Fibonacci of the 27 Jan-05 Feb ascent. These two aspects provide a set up for a large move in the coming week. This set up thus encourages us to look at the 24,380-426 as the potential upside target, with 24,226, 02 January high, offering intermediate resistance. Alternatively, inability to clear 23,800 or inability to float above 24,020 after the initial burst could deflate upside momentum.
Meanwhile, Bank Nifty is showing reluctance to push higher being at the upper range of the Bollinger band, with fast stochastics at overbought levels. Despite this, a morning star pattern in the hourly chart encourages us to play an upswing aiming for 51,000 next week with 50,500 seen as interim support. However, the inability to float above 49,800 could deflate upside hopes, exposing 48,300.
Sectoral Ideas
Metal Index saw the largest sectoral jump on Friday, registering a 2.6% jump, even as Nifty fell 0.18%. The metal index is now at its highest point since 24th January, breaking above the recent consolidation band, pointing to strength. Meanwhile, Bank Index constituents, especially the majors, like HDFC Bank, ICICI Bank, SBI and Kotak Bank are showing signs of a short-term correction, but the weekly charts remain positive with the Stochastic Momentum Index moving above zero hinting that short-term correction if any could be shallow and such dips may be used to add positions. Nifty Pharma index is expected move further up towards 22,500 backed by stocks like Cipla, Zydus Life, Divis Lab, Dr Reddy, Torrent Pharma, Mankind and Lupin.
Article first published in Financial Express.
