By Anand James
A tightly fought expiry day with a whopping 40 crore contracts being traded, majority being along index options, and with 17,800 being defended, despite looking to collapse at any moment of the day, gave no indication about the drama that was set to unfold on the next day after adverse report on Adani group shares triggered a meltdown in broad market.
Our relative rotation study showed that, after expiry, almost all of the sectors are now concentrated in the lagging quadrant which shows that sectors have largely remained stagnant compared to last month. Banks, Oil, Financials and Cement remained major draggers in January series while Autos, Metals, FMCG and IT helped Nifty to cut losses. The IT and Auto index gained 4% on an average in the January series while the rest dragged. Smallcap stocks saw significant short buildup when compared to large and midcap stocks ahead of the Union Budget. Things have changed drastically though post expiry.
Though only 32% of Nifty 50 stocks have slipped below their respective 200DMA, 62% of the small cap index stocks have fallen below this key metric, bringing Nifty’s 200DMA of 17,290 into picture as a near term support. Penetration of the same could lead to multi month bear market potentially aiming 16,500-15,500.
However, Friday’s turn of events presents an opportunity in the near term though. Firstly, we have slipped over 1400 points from the record peak, and are at the 3 SD boundary, which suggests that an end to downtrend is nearing. Secondly, Nifty PCR (put call ratio) is at 0.67 after Friday’s carnage, and incidentally, the last time we had negative close and sub-1 PCR ahead of the Union Budget, we saw a 4% gain in the 3 days post budget. Bank Nifty, meanwhile, will take solace from the formation of a morning star candlestick pattern in the hourly candle, hinting at early signs of a recovery move, but will require a push beyond 40,700, to shrug off bears. Bank Nifty’s 200DMA is now placed at 38,720.
(By Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)