In a way, the surprise gains made by the Nifty last week were nothing spectacular. An up-move of 1.21 per cent in a week is quite normal. But a significant feature of the week was the market’s resilience. It outperformed most Asian and European markets on a day when everyone expected it to remain under pressure because of the Dow’s sharp decline in overnight trade. Such moves, ignoring the global markets, were seen in the early part of 2017. Another notable feature was the market didn’t react extremely even when the earnings of some companies fell below expectations. This was surprising, considering that the market breadth was not that positive as used to be last year. It seems the market is avoiding risky bets in view of uncertainty over the Karnataka election results.

The news flow was largely positive on earnings. Most companies indicated that consumption levels are going good. Notably, micro-finance companies, too, showed better performance. Since they work mostly in the remotest parts of India, good earnings from them is surely a bullish indication.

The only negative development was that the yields on Indian paper has increased. Still, the market reaction to this was much more mature than before. While PSU bank stocks showed some decline, NBFCs, which should also have been impacted, did not witness any damaging reaction.

News flow from international markets was mixed. While geopolitical tensions showed signs of easing, crude oil remained at the upper end of the zone it had recently formed. The missing part in the crude oil puzzle was why there had been no increase in US shale gas production despite prices reaching a level that was comfortable for US companies to ramp up production. Keep looking at this space. Any increase in shale gas production should have a cooling effect on the oil price. If the crude prices go up further and weaken the rupee, that would spell trouble for the equity market.

The market has been largely ignoring the crude-rupee troubles because of the good liquidity conditions. But be on your guard if the problem persists. When the market ignores an issue for a long time and then reacts to it one fine day, then that tends to be a violent reaction. So, even while continuing to trade with a bullish bias, traders should ensure that over the next couple of months their positions are hedged in one form or the other.

Coming to oscillator charts, while most short-term indicators are in the buy mode, as they had been in the past week, even a few medium-term charts are close to giving a buy signal.8

The moving average convergence/divergence (MACD) on the daily charts is showing more divergence between the average and trigger lines, indicating a continuation pattern. But the weekly charts, which till now had been in the sell mode, is close to giving a buy signal as the average and trigger lines are placed very close to each other and this oscillator has taken support just above the equilibrium line, which again is an indication of continuation of the current trend.

The 12-day rate of change (ROC) is in positive territory as it keeps moving in sideways direction. The extreme short-term indicators are placed in overbought territory as they move in sideways direction and some have broken their range up further, indicating that the Nifty’s current up-move has still some strength left in the extreme short-term.

Coming to short-term support and resistance levels, the Nifty, after Friday’s closing move, has moved above an important resistance level that was getting formed by one gap-down opening and one short-term top. Now this move needs a confirmation by staying above the level of 10,690 for at least two of sessions, and not slipping below it, on a closing basis. If that happens, then the next serious resistance to the Nifty would come in the zone of 10,850 to 10,850, where some degree of profit booking may happen. Profit booking-led corrections are short in nature but since the Nifty would be reaching close to its earlier high, a correction is possible from selling in positions that had been held and their mark-to-market is paid. So, the second major resistance the index would come close to the 11,000-mark.

The first support for the Nifty would come at 10,490, after which another minor support would come at 10,370. But if the first support level is broken with very bad market breadth, then we might even see more trouble time-wise.

rajivnagpal@mydigitalfc.com