The Nifty closed the week at 19,564 with a gain of 1.2%. This has positive implications for the markets.
In the last fortnightly article, I had indicated a resistance zone of 19,370 to 19,500 for the benchmark. The first one was the Golden Ratio Fibonacci Extension of 61.8% at 19,373 and the higher end of the resistance zone was from the 19,500 strike-price in the Nifty that housed the maximum number of calls written in the July series.
This makes 19,500 a good support for the Nifty now.
With the Golden Ratio Fibonacci Extension of 61.8% (19,374) now in the rearview mirror, 78.6% Fibonacci Extension is the next logical target or resistance for the Nifty which is housed at 20,055. Attaining this target will necessitate crossing the 20,000-mark, which in itself is likely to be a Herculean task as round numbers bring in a lot of willing sellers at those levels.
The highest number of calls that have been written also happen to be at the 20,000 strike-price in the July monthly series.
Meanwhile, the market breadth continues to be healthy with more than 79% of the NSE 500 companies well above their 200 Day EMAs.
Rotation of sectors is also helping the markets, which is not allowing any particular sector to be over heated. If it was the Pharma sector that took leadership a week back, IT and metals were at work last week. The Bank Nifty was largely subdued but saw action in the last half an hour trading indicating a mild revival of interest.
Meanwhile in the US, inflation data seems to be coming in tame. On Wednesday, the June core CPI showed a 0.2% month-on-month (MoM) rise, the smallest such increase in more than two years. The producer price index report, which came in on Thursday showed a 0.1% MoM gain in June core PPI compared with an expectation of +0.2%. This should keep the Fed’s hawkish instincts calm.
The Nasdaq has announced that its key Nasdaq-100 Index will undergo a special rebalance exercise which will be effective before the markets open on Monday, July 24 2023. This will address the overconcentration of the ‘magnificent seven’ tech stocks in the index by redistributing the weights.
Paying attention to IT and especially midcaps may help this week.
(The writer has over three decades of experience in the capital markets. He retired from HDFC Securities as head of private clients’ group and capital market strategy)