By Anand James
Nifty is coming off a low base after steep and sustained downtrend from record peak, and is now at the upper range of a narrow Bollinger band. This low base sets up environment for at least a push higher, running up to the Muhurat trading, as similar phase during three 3 out of last 4 years have seen a minimum 4% rise. Further FIIs’ shorts in index futures being at an extreme position also supports the prospects of a push higher. At 48%, short positions are the heaviest with FIIs among all participants, with the next highest being with retail clients, at 29%. This is the most extreme for FIIs this year, raising scope for short covering led rallies.
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While Nifty has just about managed to get back near the nearest reaction high, it is still below the 14 day SMA. In contrast both mid and small caps have raced higher with the former now exactly at the 62% retracement from the peak, while the latter has pierced even that is closing in on the record peak, which is just about 1.5% away. In other words, risk appetite has vastly improved and that is showing in the mid and small caps more than what the Nifty 50 stocks have allowed to reveal.
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Even as we continue to look for 19,420 as the immediate target, the two dojis in the last two does not inspire confidence towards an outright uptrend early next week. Inability to float above 19,230 initially, could point towards this, but dips towards 19,180 or slightly below could augur well towards resuming upsides, while collapse fears may be rekindled only on falls below 18,900.
Sensex had a slow Friday, but will continue expecting 64,800, which should see the maturing of an ascending triangle reversal. Alternatively, inability to float above 64,100 after initial positivity, could negate upside hopes, but an outright collapse or slippage past 63,400 is less expected, and might only serve to delay extended upsides.
(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are author’s own. Please consult your financial advisor before investing.)
