By Anand James
Last week, we had placed two bets going into the shortened week. That upside would be limited to 23580-680 in Nifty and that there would be a mean reversion move. While the former turned to be spot on to the dot, the mean reversion expectations failed to mature fully, despite several attempts to head lower.
Reasons could be several, including the shortened nature of the week, as well as low VIX. What we are keen on pondering is how they are likely to shape the fate of the next week. VIX, which had been on a steep fall since the electoral outcome, rose in a couple of days, but the rise was too feeble to expand trading ranges.
Nifty’s supports have held so far
We are tempted to go in this week, with expectations of range bound movement again. We have also noted that directional moving indicators are pointing towards lack of strength in the ongoing trend, but favours a bit towards downsides, with distribution seen across Nifty’s constituents.
With all these in the backdrop, the 23420 region that thwarted multiple downside attempts is less likely to stand another and a break of the same should lend momentum to the bears. The upside prospects are not extinguished though, but, we feel that we could see 23000 before seeing 24000 on Nifty.
Bank Nifty meanwhile appeared to move in the opposite direction to Nifty last week, and had more and stronger advances in comparison. The result is a flag that is usually seen as a bullish continuation pattern. This encourages us to pursue Bank Nifty’s outperformance this week, while potting 52400 as the likely upside objective. We may however be not interested in sticking with an upside view should there be a slippage past 51300.
Sectoral Cues
Friday saw gains being given away across board except for a few pockets, which is indicative towards the need for looking for deeper dips rather than chasing prices higher, when it comes to stock picking.
Among the ones that showed strength among the profit booking tendencies last week, are IT and Realty, while PSU banks appear to require deeper dips before bargain hunting emerges. PSU bank index along Energy index have the lowest number of stocks below the 20 day SMA after last week’s slippages, while IT, Realty and consumer durables indices have all their constituents now above this key short term benchmark.
(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.)