By Anand James
The pull from 17000 has become irresistible now. That it coincides with the 200 day SMA makes it all the more compelling for NSE Nifty 50 to pay a visit, now that Friday closed just 1.7% away from it. Even more so, because the 38.2% fibo of the Jun-Sep move is also at the same level. So, the question is not as much as about whether we will see 17000, but more about what to expect after that. Ideally, a breach of 17000, will bring in 16000 into picture, with interim supports seen at 16800 and 16650, but favoured view sees several reasons, why we are less likely to see a vertical plunge. Why, we could even see prices turning on its head, midway.
Firstly, VIX just a tad under 20 suggest that traders’ volatility expectations are neither benign nor too high as has been the case when Nifty approached the 200 day SMA in the last few occasions. In other words, a good element of uncertainty is already priced, and that the market can not be shocked to give in. Secondly, FIIs hold about 80% of its index futures as longs. So, the surprise is skewed towards the upside. However, the catch is that FIIs hold just under 9% of the total index future OI. Thirdly, the 14 day relative strength of more than 50% of the NSE 500 stocks had already sunk to the 30-50 region by Thursday itself. While, this in its isolation does not rule out further decline, there are no indications of an overbought situation either.
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Among the sectors, banks, energy look vulnerable. IT was already in a down move and we would be actively scouting for turnaround stories. Pharma and Metals seemed less affected last week, which is where I will hunt for strength this week. Autos haven’t committed to a direction yet, while FMCG looks to see more upsides, but may have to go through a profit booking phase, should sell off in the broad market if it intensifies. Else, it is one sector to stay put. Realty looks like an avoid for this week.
(Anand James, Chief Market Strategist at Geojit Financial Services . Views expressed are the author’s own.)