Usually, both index and individual stocks show stable movements in the first week of a new derivative series. But last week, after a strong upward movement on the expiry day of the May series contracts, the indices turned volatile in the next two sessions. Such strong volatility is surely not a sign of good weather for the bulls near-term. Maybe, it is time to move from the long-held strategy of bullish to netural to bearish to neutral. 

With this change in stance, traders should now think twice before taking a long position and also keep their long positions hedged. Probably, as we move further into the year, we might see more phases where Dalal Street would be put to a reality check. In such phases mid-caps would likely suffer far more dent than the Nifty. Most probably, even the mid-cap index is unlikely to capture possible steep fall in individual stocks. So, traders have to be careful before taking exposure to mid-cap stocks. If an exposurte is made, always remember to hedge those position.

The domestic news flow was largely on the expected line; the RBI finally raised the rates by 25 basis points. But what is more troublesome for the bulls is that the yield on one-year sovereign bonds has continued to rise. Last Friday, it crossed the 8-percent mark. Please note that in the last quarter, even after the RBI came out with a dovish statement, the yield continued to rise after an initial dip. One wonders whether the RBI is the reason why the market is pushing up the bond yields.

While news flow from the international market had nothing major which could have impacted the market directly, the movement in oil price needs to be watched. After dipping a bit from the recent high of $80 a barrel, prices have moved up again. It is not yet known if the dip was a correction and the recent high would become a factor in determining the direction of the Indian equity market. If oil surges, the Indian market would underperform other markets. So, traders need to keep an eye on the oil price, as also on the rupee.

The domestic currency saw a sharp dip on Friday, but that was largely ignored by the market, probably because it would have been influenced by the previous day’s trade in the currency market. But, if this weakness in currency persists, it may lead to a further decline in the equity market.

Most short-term charts are in the buy mode, but macro formations that emerged on most charts in the week before last are still not showing strength. This probably points to likely broader range moves of the indices near-term.

The moving average convergence/divergence (MACD) on the daily chart is placed in the buy mode, though the average and trigger lines have not diverged much. On the weekly chart, this oscillator remains in the buy mode but here also the average and the trigger lines have not diverged to the extent to trigger a fresh trend.

The 12-day rate of change (ROC) is placed in the buy mode as it keeps moving up in positive territory. The other extreme short-term indicators are placed in the buy mode as they inch up toward overbought territory. Some extreme short-term indicators have broken the range-bound mode in which they had been moving for sometime, indicating that probably the first half of this week might see an upward movement before any resistance is encountered at higher levels.

Coming to short-term support and resistance zones, the first resistance to the Nifty would come at 10,875, from the downward sloping trend line drawn from the all-time high the index had formed in January. If the index crosses this resistance level, which it may given that some short-term oscillator charts have given an advance break-out signal, the next resistance would come at 10,950, where the Nifty would witness some profit booking. 

The first support for the Nifty comes at 10,650, after which 10,570 would be another support range. If this level is broken, that would pull the index down towards the recent low of 10,417, formed in the second half of May. While the Nifty might remain bullish this week, it is the mid-cap index which holds the cue, as eventually the Nifty will be forced to follow it.
 

rajivnagpal@mydigitalfc.com