Caution is key, as geopolitical tensions result in a watch out, look wary scenario
N Korean leader Kim Jong-Un waves from a balcony. Ranks of goose-stepping soldiers followed by tanks paraded in Pyongyang with tensions mounting over his nuclear ambitions. Pic/AFP
Nifty and Bank Nifty made new highs, but profit booking trimmed both indices and closed lower on Thursday. Investors took a cautious stand because of the long weekend and heightened geo-political tensions. Foreign investors turned out as net sellers in domestic markets and in equity markets, domestic institutional investor's supports were also nominal this time.
Going forward, the markets may correct due to the rising S&P 500 VIX and India VIX, which are said to be early indications of uncertain market conditions. Nifty has minor support at 9027. Today (Monday) markets may open well below this and may recover in the second half. If Nifty fails to recover then we can expect support from 8995. Two consecutive days closing below 8995 can cause further profit booking. Nifty has resistances at 9258 and 9270, a further uptrend can be expected above these two levels, but chances are remote.
Investors can buy Nifty put options if there is a weakness in market trends. It is advisable not to create short positions on Nifty put options. Last week, India's front line inflation moved towards 3.8 per cent from 3.6 per cent, and, Industrial production contracted towards -1.2 per cent from 3.3 per cent. During the week, WPI Food, WPI Fuel, WPI Manufacturing data are expected along with Nikkei Manufacturing PMI.
Dow Jones Industrial average closed on Thursday at 20453, the weakest closing after Presidential elections in November. Immediate resistances are at 20653 and 21091.
Minor support lies at 20269, and a decisive move below this can cause further sell off. So investors should take a cautious stand while taking fresh, long positions.
A long term perspective
In the domestic market, defensive sector stocks are likely to help the market in a great way. Nifty FMCG index is likely to move up to 23840. Pharma sector stocks can also support the markets, Nifty Pharma Index is all set to test 10776 and 10906. Nifty Banking Index is still in buy mode and many frontline banking stocks are expected to come out with their quarterly earnings this week. It is prudent to take a cautious stand, rather than buying in large quantities ahead of the results.
Nifty Metal Index was weak and it will remain subdued for a while at least. Nifty Metal Index has support at 2958. Majority of front line stocks look weak. Nifty IT stocks are in the oversold region, but are yet to give a buy signal due to weak quarterly earnings and strong domestic currency. IT index is likely to get support only at 9743.
United States Industrial Production MOM and YOY; US EIA Crude oil stock change and US continuing jobless claim data is expected. From the Euro Zone Balance of Trade, Inflation rate, Consumer confidence and Markit Service PMI is also due.
India's front line companies started coming out with their quarterly earnings. Companies like TCS, Indusind Bank and Yes Bank are the few on the list. Investors are advised to take good quality stocks for long term perspective, if there is a price correction.
Alex K Mathews is the founder of www.thedailybrunch.com