By Anand James
Last week ended with the 19,300 region attempting to force a pause to the liquidation spree that unfolded in the last hour. This needs to be read with the fact that we had begun last week with overbought signals ringing in several indicators and sectors. It is true that 72% of the Nifty50 stocks are either nearing or in the overbought region, with IT, Auto and Banks being the top 3 sectors by weightage in Nifty that are overbought. However, overbought signals seldom signal a reversal in a trending market, as much as they do in a sideways market.
Bank Nifty on the other hand is already enroute a correction as signal by an evening star pattern registered a few days back in daily charts. However, the down moves have not been momentous enough as yet. This is because the breakout was too recent to make the evening star potent enough as a reversal, raising the prospects of the ongoing moves to slip into a flag, therewith a bullish continuation pattern. This makes entry into bank nifty a bit dicey, early on in the week, urging us to wait for a break below 44,800 before playing downsides with more freedom.
Amidst all this, VIX, which had started to rise from near record levels, adding weight to chances of a correction, slipped 2.6% on Friday. This is hardly a template that bears would have liked to launch an assault on, but, we will closely watch the progression of VIX next week.
Meanwhile, USDINR swung higher viciously, breaking above a suffocating trading range that had held prices subdued for over a fortnight. This would be the 6th time since October that we would be seeing USDINR attempting to surge past the record peaks. Hence, we are not excited about the continuation of ongoing uptrends, until a clear break above 83.25 is seen. Nearest support is seen at 82.41.
(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)