Liquidity, optimism & momentum driving markets
The new bull market is here as Nifty has rallied 23 per cent from the lows of 20 December 2011 to date.
Markets continued their relentless up move with Nifty gaining 3.3 per cent and the high beta bank Nifty moving up by 6 per cent over the last week.
The wall of liquidity continues to chase momentum & defy all negatives including poor macro data & Greek headwinds with FIIs buying Rs 4059.54 crore worth of stock in the week gone by.
The heady cocktail of liquidity, optimism & momentum are now reaching the climax phase where the last “blow out” may leave a serious “hangover” as markets reach nine month highs in just seven weeks.
The week gone by:
The Top weekly gainers in the A Group were Lanco Infra (39 per cent), Indiabulls Finance (31 per cent) & HDIL (27 per cent), while top losers included TTK Prestige (down 8.4 per cent), Cipla (down 7.8 per cent) & Educomp (down 6.5 per cent).
The top sectoral winners were Bombay Stock Exchange (BSE) reality (10.18%), BSE power (8.54%) and BSE capital goods (7.9%), while the only loser was BSE oil & gas down 1.44%.
Technically, the markets made the “partial golden crossover” with the 20DMA (day moving average) crossing the 200 DMA.
Outlook:
The next test would be the 50 DMA crossing the 200 DMA, which will take time. As earlier emphasized, the making of an “inverted head & shoulders” has been completed and we have reached the higher “neckline” levels of 5,600 from where we fell off in the end July 2011.
As earlier indicated, the new “bull market” is here as Nifty has rallied 23 per cent from the lows of 20 December 2011 to date.
The Nifty will find severe resistance at these (5,600/5,650) levels, which are almost 60-62 per cent retracement levels from the entire fall from the highs of 6,338 & lows of 4,551 made by the Nifty. Support levels would now be at the break out levels or earlier resistance of 5,420/5,430.
The coming week will be volatile as we have a holiday shortened week with expiry of February F&O (futures and options) contracts on Thursday.
Global markets:
The global markets are also mimicking the Nifty & rallying alongside, with caution being thrown out of the window and complacency now reaching highly overbought zones.
The surge of buying was even more widespread with sector/stocks from most oversold levels rallying the hardest, indicating the “left out” feeling now spreading to the retail investors, who were hiding in defensives like gold & bonds now making a comeback into equities.
Strategy for the week:
Caution would be the buzzword from here on as the much needed correction continues to elude the market, making the rally seem a touch “frothy” as most outperformers continue to be in sectors where macro news is far from improving in the short term.
That withstanding the liquidity & under ownership of stocks might continue to chase momentum & keep the markets over bought for some time. The smart money would use any good news now, whether global regarding Greece or local regarding macro data, to book profit ahead of the UP election results. That verdict would definitely influence the toughest budget this government would have to deal with in its tenure.
Factors to watch:
1. Volatility ahead of F&O expiry & holiday shortened week
2. Global headwinds regarding Greece & other Macro data
3. Rupee/bond yields & local macro data
4. FII flows & the return of domestic investors
5. Nifty levels to watch: Support at 5,430; Resistance at 5,680
(Sanjeev Bhasin is an independent investment advisor based in New Delhi and an expert on NDTV Profit’s daily show ‘Buy or Sell’).