By Anand James
Nifty’s upside attempts on Friday fell painfully short of making any meaningful advance, a testimony to the level of distribution that was in play after Nifty had stormed into the 17400-500 territory. While this region was long discussed as an end in itself, at least for the near term, the breadth of upsides across stocks as well as indices had raised the hopes that the Nifty could continue marching ahead, while also encouraging talks of a new peak as Diwali approaches. While it sounded far-fetched, it was not without reason, as a good majority of stocks had crossed the back above 23 September’s break away level. The close near 17300 on Friday is clearly an exhaustion sign, but not a signal towards a crack down.
As a testimony to this, only under 4% of NSE 500 stocks broke below their respective 5 day lows, while only about 11% of the NSE 500 stocks pushed beyond their respective 5day peaks. This suggests that the majority of the stocks are neither weak nor have they cracked already. In other words, brace for volatility, but not a collapse, in the week ahead. Standard deviation studies had encouraged us to look at 18100 as the potential upside target for the short term, but for this to remain alive, we would require a close back above 17160 on Monday itself. In the event of this not happening, only the 200 day SMA seen at 16982, standing in the way of creating a new two month low. September’s low was 16747.4.
Meanwhile, after breezing past the 80 mark, USDINR had slipped into a fortnight long consolidation inside the 81-82 region, which was initially seen as an exhaustion signal. However, this band has been broken as well, setting up a target of 83.3-83.6 in the near term, and with an optimistic target of 85. Alternatively, a swing back below 81.6 would have to be taken as a bear call, with initial support seen at 80.95.
(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)