Show patience as consolidation phase demands that you sit back and weigh your options
A trader works on the floor at the closing bell of the Dow Jones Industrial Average at the New York Stock Exchange. Pic/ AFP
Nifty closed at 9,588 on Friday, which showed the technical set up of the market is deteriorating. It is likely to test 9,516 in the short term. The open interest of the Nifty 9,500 put option is also supporting this level. High open interest at 9500 strike price of the Nifty put option, indicates the strong support level at this level. If Nifty falls below 9,500 level then it could test 9,424, but chances are remote. Markets are consolidating at 9,500 levels after the Federal Reserve’s move to increase interest rates. Fed increased the interest rates by quarter percentage, and we can expect more interest rate hikes in the near term.
Bank on this
S&P 500 VIX dropped on Friday by around 4.77 per cent, and closed at 10.38. Our domestic India VIX also closed at 10.9 per cent which indicate strong support at 9,500 levels. Nifty put-call ratio also further giving indication that Nifty could bounce back towards 9,700 levels. Banking stocks may get support at lower levels, Bank Nifty could get support at 23,258 and it has resistance at 23,705. If Nifty moves above 9,600 level, then we can see selective buying in front line banking stocks. Like Banking Nifty, metal index is also suggesting further uptrend, it could move towards 3,020 in the short term.
Other than Metal Index Nifty, the FMCG sector also indicating further upward movements. On the contrary, Nifty IT and Pharma sector along with Nifty Auto index are looking weak. At the beginning of the week, we can expect selective buying and short covering, but do not expect sharp bounce back.
The Nasdaq indicator is still looking weak but Dow Jones is placed better. Dow Jones has immediate resistance at 21,453 and 21,806, it has support at 21,163. It is prudent to buy long strangles of Nifty rather than buying the put options alone.
Last week, the May WPI inflation figures came out, which was below street expectation and it stood at 2.17 per cent versus 3.85 per cent in April. Next week Infrastructure output YOY and Foreign exchange reserve datas are due.
From US, EIA Crude oil stock change, US Markit Composite PMI flash and Manufacturing PMI flash are due next week. Current account, Balance of Trade, unemployment rate, Industrial production MOM, GDP growth rate and Balance of trade are expected in the week.
Crude is weak, the weekly charts and monthly charts indicate further weakness in the days to come. Crude has support at $41.68 per barrel and it could even fall below the $40 mark due to high inventory in US. OPEC nations decided to reduce output to support the falling crude oil. Crude has resistance at $47 in the medium term.
Good as gold
Gold is weak due to high interest rates in US, and slow demand despite the geo-political tensions. Gold has tested $1300 per troy ounce and now it is facing technical correction. On the downward trajectory $1,248 will act as a major support level. It has resistance at $1,281 in the medium term. More intensified selling can be expected if gold falls below the $1,248 mark.
Alex K Mathews is the founder of www.thedailybrunch.com
Watch Video: Mystery over model and TV host Sonika Chauhan's death?
Download the new mid-day android app to get updates on all the latest and trending stories on the go https://goo.gl/8Xlcvr