By Anand James
There have been no pretensions of stocks being expensive. But persistent inflows have braved the headwinds and encouraged us to ride the rough seas in pitch dark. But now with Fed comments as well as weak US jobs data sparking fears of economic slowdown, everything has become seemingly too expensive to hold or add. The first crack in the markets, after seeing 25000 on the Nifty has ushered in collapse fears, especially having been on the run-up for an extended period on a month-on-month basis without any sizable correction.
Nifty may attempt to avert a collapse
Broader market, represented by the Nifty 500, was showing signs of distribution all through last week with gains becoming flatter, even as Nifty kept advancing towards 25000 every day. This divergence between the broader market and the benchmark index came to a head on Thursday, as Nifty’s gapped-up opening above 25000 initiated a profit booking, which even while not stretching much, gave enough signs of bullish exhaustion that would eventually force a gapped-down opening on Friday. Ideally, this move should see 24400-330 or 23650 right away, but directional moving indicators are yet to signal momentum, and 49.6% of Nifty 500 stocks are still above 10-day SMA, suggesting that the next leg of downsides may require a period of consolidation initially. The congestion band at 24850 should resist most upsides, but a direct rise above 24940 could put Nifty back on to the 25800 trajectory. Its prospects look limited for now, but may nevertheless be planned for, especially if the present downsides do not stretch beyond the 68.2 Fibonacci Band of the recent high-low at 24540.
Bank Nifty
The index biggies, ICICI Bank, SBI, Axis Bank and Kotak Bank which together form around 57% of the index, look weak in weekly charts with weekly MACD signal breaks seen in SBI and Axis Bank. HDFC Bank which alone contributes 30% to the Bank Nifty index looks positive in daily as well as monthly charts and can lend support to the index. However, in all, only 25% of the index constituents are above their respective 10-day SMA, suggesting that a weakness has already set in. While this suggests that bargain hunting cannot be ruled out, the proximity of 50700, from around which a recent weakness was reversed, points to the potential for a deeper plunge to 48000. This warrants protective stops for longs at 50700.
Sectoral Cues
Nifty Pharma Index has been in an upmove since it broke out of the horizontal resistance in June. Weekly MACD had broken above the signal line favoring this upmove and the index remains positive. We expect the index to glide towards 24000 in the next few weeks. Such a move is expected to be supported by Sunpharma, Zyduslife, Divislab, Drreddy and Lupin. The Nifty Realty Index has seen a bearish exhaustion in the monthly time frame indicated by multiple reversal/exhaustion candles. The monthly RSI is close to 80 and the MACD histogram in the monthly time frame has shown signs of exhaustion. We expect the index to move towards 955 and 860 in the next few weeks. Stocks like Lodha, Godrejprop, Oberoirlty, Phoenixltd and Prestige could drag the index down. The Nifty IT Index has seen a weekly bearish Marubozu candle and the MACD histogram has shown signs of exhaustion in the weekly time frame hinting at a pullback. Also, MACD has crossed below the signal line in the daily time frame supporting a short-term bearish construct. Expect TCS, Infosys, HCLTech, Wipro and Tech Mahindra to drag the index down.
(Disclaimer: Anand James is the Chief Market Strategist at Geojit Financial Services. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)