The Nifty closed the week 0.5% lower at 19,646. Though the benchmark has made four red candles out of the possible five last week, I feel the Nifty still has more steam left.
In the last article, a fortnight back, I had put the resistance at 20,055, a 78.6% Fibonacci extension and had warned that round figures, in this case 20,000, could act as the first resistance. The Nifty touched a high of 19,991.85 on 20th of July and slipped from there. This makes the 19,991-20,055 range as the immediate resistance zone. Since the beginning of the current rally in March 2023, the 21-day EMA has acted as a strong support. The 21 DEMA is currently housed at 19,508.
With a streak of four positive series under its belt, the odds of doing an encore for August are not all that great but there have been instances when the Nifty has scored six positive back-to-back series gains ( December 2016 to May 2017). I remember instances of even nine consecutive series gains, but that was before 2005 when the derivative trading was in its infancy.
Meanwhile, last week the US Federal Reserve resumed its rate hike cycle and hiked benchmark interest rates by 25 basis points to the range of 5.25 to 5.5%, the highest level in over two decades. The accompanying policy statement left the door open to another increase.
The next FOMC meeting will be on September 19 and 20. The Fed will have the opportunity of looking at two non-farm payroll numbers of July and August months and the trajectory of crude, which has already risen 14% this month.
The August month happens to be the worst month for the US markets dating back to 1986. The Dow’s average August return over the past 35 years is negative -0.67% compared with an average gain of +1.05% for the other months of the calendar.
The US markets have closed firm Friday on hopes that the Fed is done and dusted with rate hikes. There’s more steam in the Nifty, hold your course with stop losses.
The writer has over three decades of experience in the capital markets. He retired from HDFC Securities as head of private clients’ group & capital market strategy