Different factors act as catalyst for the rally we are currently witnessing, both in India and overseas
Brokers react to stock prices at the Bombay Stock Exchange as the Sensex crossesthe 31000 mark in Mumbai. Pic/PTI
Nifty made a new 52-week high last week and finally closed down on Friday at 9,595. Market participants covered their shorts ahead of the May futures and option expiry, which lifted the indices at all time high. Expectation of the early arrival of the monsoon and possible roll-out of GST in July supported the market. This is a rally driven by global liquidity. In India, domestic investors and retail participants are the reason behind the rally. As the interest rates are at lower levels, investors do not have any other option other than investing in equities. New investors can wait for correction, which is expected in another two to three weeks time.
During the week, global market volatility spiked due to the said news flows, but settled lower later. S&P 500 VIX once moved above 10, and finally receded at around 9. Domestic India VIX on Friday closed marginally higher at around 11.Historical low volatility can take equity markets higher.
Domestic markets are slightly overbought. Yet, it is prudent not to create short positions because most of the Indies are at multi-year highs; minor buying interest can trigger short covering. Nifty has strong resistance at 9,670. Supports for the Nifty are at 9,422 and 9,400. If Nifty moves down below these levels, then we can expect further weakness. Chances of this though are remote. Two long and one short in the Nifty option segment can act as a good strategy in the current scenario.
Bank Nifty last week closed at 23,363, and has strong support at 23,000 and has resistance at 23,565. PSU Banking stocks are likely to move up further because of the upward momentum of PSU Bank Nifty. Without support of the Banking Nifty, markets would not move up.
Dow Jones is still positive but losing its upward bias because of the overbought situation. The S&P 500 VIX is a multi-year low suggesting further uptrend. Dow Jones has support at 20,715 and 20,500. Resistance for Dow Jones is at 21,163.
Crude started its northward movement after Saudi and Russia agreed on the need to prolong the current cut until March 2018. Crude got support at $48.21 and resistance at $50.33, sustainability above $52 seems to be difficult at this juncture. Geo-political situations lifted the sentiment over gold. It is likely to move towards $1,274 and most probably, will test $1,285 in the medium term. We see support at $1,250.
Alex K Mathews is the founder of www.thedailybrunch.com
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