By Anand James
Thursday’s bear trap had resulted in a disproportionately large rise, which ended up rendering the trend vulnerable. Hence, Friday’s sharp falls did not come as a surprise. In fact, negative divergence in oscillators had begun to show towards the second half of the week, but it became potent only after Nifty entered a congestion region that had reigned in many advances in December 2022 and earlier.
VIX had plunged to a near-record low in the previous week, pointing to a sense of comfort that traders are at, despite being at lofty levels. While VIX rose over 17% by the end of the week, it is not yet at a level that could indicate an outright collapse.
Towards this end, we feel that the rally still has more wind in its sails, and is likely to resume and aim for a new record peak, as long as dips do not extend beyond 18000-17800 in Nifty. Bank Nifty appears exhausted and would require ongoing dips to be held above 42400, so as not to lose the momentum to penetrate 42900 again and get back to the upside trajectory. Else, expect 41700.
Meanwhile, 83% of Bank Nifty constituents and 66% of Nifty 50 constituents are trading above 200 day moving average, and only 47% of NSE 500 stocks are still trading below this key suggesting that the ongoing dip and consolidation could allow reallocation, and thus augurs well for the sustainability of the uptrend.
(Anand James is Chief Market Strategist at Geojit Financial Services. Views expressed are author’s own.)