Having just three full trading sessions, the market was expected to witness lacklustre trading, given the holiday mood prevailed on the street. But the quarterly result from one private bank was enough to unsettle the entire stock market. Bank stocks came under heavy pressure and with that a large section of the market felt the underlying pressure.

The market’s shock reaction was understandable. Private sector banks were assumed to be a space where the bad loan problem was largely addressed and where foreign institutional money was parked. So, if a private sector bank has shown a sharp increase in its non-performing assets, together with a baggage of under-reporting in the previous financial year, it could mean more players from the sector could be having issues with NPAs.

As such, earnings from the manufacturing sector is yet to show a major positive surprise, though cement company earnings exceeded expectation. The market’s reaction to the results so far indicates that the stocks which carry positive surprises in earnings will be rewarded and those not keeping pace would be severely punished.

Another noticeable feature of the last week was that after a gap of almost four years, telecom stocks saw sustained buying, along with some large institutional deals taking place. The sector is showing signs that the price war is easing a bit. It is still not sure whether it is a random event or the sector is getting its mojo back. Traders need to keep a watch on this space for both investment and trading opportunities.

International news flows were rather mixed last week. Macro numbers from the US were good, but at the same time, some numbers from China disappointed. Chinese numbers were not having an impact on the market here in the last couple of quarters. However, this time, since the metal stocks have seen a rally, the numbers could have an impact in the short-term.

Once again geopolitical tension showed up and this unnerved the Asian markets, including India, on Thursday. But the mother of equity markets, the US market, shrugged off it all and ended in the green. So, we might see a gap-up opening on Monday. But it has to be seen whether that would be sustained till afternoon and beyond.

Most oscillator charts are in the buy mode, but some are showing the first signs of weakness. The moving average convergence/ divergence (MACD), on the daily charts, is in the buy mode, but the average and trigger lines have started to converge, indicating a higher probability of correction in the next three to four trading sessions. The divergence between the average and trigger lines on the weekly chart is getting narrower, once again indicating that a buy signal might get delayed.

The 12-day rate of change (ROC) is placed in positive territory and has turned southward, indicating a slowdown in the momentum. Even on the weekly charts, this indicator is showing a slowing momentum. The other extreme short-term indicators have given sell signals as they move southward from overbought territory. Some of them have shown negative divergence before giving a sell signal.

Coming to short-term support and resistance levels, the Nifty’s first support comes at 10,105, after which 9,992 is another short-term support range. If the index breaks this level, the probability of it coming below the support giving 50-day moving average (DMA) increases sharply and would also challenge the recent lows formed by the index.

Traders have to check out which segment of the banking sector is leading the Nifty down; if it is private sector banks, then more trouble could be in store for both Nifty and Bank Nifty. However, the banking sector’s decline is happening in a set proportion, reflective of ETF selling. If this pattern is followed, then the price fall may not be very strong, but will only add to volatility.

The recent all-time high of 10,251 would be the first resistance spot for the Nifty. After that 10,400 would be another range where the Nifty could come under pressure from profit booking. Traders have to decide what kind of trade to do; whether short trade, which would yield faster gains but come with the risk of getting wrong, or wait for the correction to get over and then do a long trade, where returns might be slower but so is the risk.

rajivnagpal@mydigitalfc.com