By Anand James
While the music on rate cuts got sweeter towards the end of the week, following Powell’s comments, it was noteworthy that Nifty Bank had already registered couple of day’s close above the falling broadening wedge, which is usually seen as a bullish continuation pattern.
Ideally this signals a breakout move that will have strength and can do the distance. This encourages to set 50,000 as the nearest objective. Meanwhile, the broader market has continued to see a churn with focus shifting away from smaller caps to large caps.
Among the constituents of Smallcap250 index 74% stocks saw negative weekly closing last week. Number of stocks that remained above 100DMA fell to 59% from 79% and those that remained above 50DMA fell from 82% last week to 40% this week.
In the case of Nifty100 stocks, 19% of the stocks have closed above weekly high and those that closed below weekly low fell to 1% from 7% last week which are pointing towards a shift towards Largecaps and Large midcaps. In other words, those who are used to aggressive bets on the smaller caps, should recalibrate stance and acknowledge that tail wind from institutional buying may be missing.
This divergence among companies based on market cap is probably the reason why the pattern in Nifty, an index with more than four times as many stocks in Nifty Bank is markedly different. Nevertheless there has not been any visible sign of breakdown as yet.
On the Nifty, we have been eying the 22450-550 region for a few weeks now, to trigger a distribution phase, and lead to a correction. But the ascent to this region has already taken enough time and has seen plenty of consolidation phases and minor corrections rejuvenating the uptrend for the long haul.
This scenario sees Nifty being catapulted into the 23000-23500 region. We acknowledge that oscillators are all tightly wound and are in the overbought space, but none of them have signalled an outright weakness.
In other words, this set up is likely to lead to large jumps usually associated with trending markets in overbought conditions. Meanwhile, 22400-350 region, while not a strong pivot, may be enough to be used as a downside marker, though an outright collapse is also not seen on slippage past the same.
(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are author’s own. Please consult your financial advisor before investing.)
