At what market levels do you monitor? Even if we don’t go much higher from here, how important is it to hold the 17,000 mark?
We have seen a good return of the indices over the past two days. Between the two, the market also showed a lot of balance for itself. Four or five days ago, there was only one day when only large caps rose and the breadth of the market was negative. A host of large cap names like ITC, Reliance, HDFC looked quite strong. Now, over the last two or three days, we have seen that the middle part of the market has been much more dynamic. So it’s a market that moves very quickly into phases where the move started from the large caps, the sentiment turned positive, and then you see the moves trickle down to the mid caps. This is typically a sign of a new trend emerging on the index.
The Nifty broke above the 200-day moving average and on the same day, the Nifty also broke above its 50-day moving average. It is possible that since we broke these averages on the same day and with a gap, in the first half of next week this gap that was created would serve as support for the index. This means that the 16,980-17,000 mark should now act as a floor or support for the Nifty; and until the index trades above these levels, even if we cross a consolidation zone, the bias must remain on the bullish side.
What do you think of banking and financial names, as they have made a big comeback? What is the next level you are watching for Bank Nifty?
Bank Nifty is still trading below its 200-DMA. Nifty gave a strong breakout both in terms of critical averages as well as the 17,000 psychological mark for itself, but Bank Nifty is still trading below its 200-day moving average. So, for the indices to get back into the performance and outperformance line, they need to break above the first crucial resistance which is around the 36,650 mark, which is also the high reached by Bank Nifty on Friday. Then the next set of averages is 37,000 points. So, in the next group of around 400-500 points, there are two very steep resistances for the banking index. Now that’s why I think maybe in the first half of next week we could go through a consolidation zone, where the Nifty would probably pull back a bit and bank stocks might try to gather steam to try and test these two resistors.
From a very short term perspective, Bank Nifty may try to fight for itself a bit, heading towards that 37,000 mark, but if the 37,000 mark is broken then we could be in line for a much stronger rise for Bank Nifty. . The majority of the weighting of the next price performance for the banking index is expected to come from the names of private sector banks. We have seen HDFC Bank look exceptionally strong, we have seen Axis Bank, ICICI Bank make a very strong rally from the lows of the previous week for themselves. So the position may continue for private sector bank names, but for the banking index, 37,000 is the level to watch.
Looking at these charts very closely, where do you think crude is heading now?
Crude is going through a big mean reversion process. Now when I look at the Brent crude chart there was a point in August or April 2021 where crude was around $80 to $85 a barrel and then it was pretty much hovering in that area of consolidation for itself, and slowly and steadily when it started to rise and spike, that’s when we saw the asset class move to the $130 levels. It was going through a very slow and steady natural uptrend phase, but all of a sudden, due to the Russian-Ukrainian issues, crude shot up quite steeply.
What crude is doing now is moving back towards mean reversion or that trendline that actually started from the middle of the previous year. This trendline support is closer to $96-95 a barrel on Brent Crude levels. My feeling is that the $95/bbl mark should actually act as a pivot range for crude over the next two weeks or maybe the next two months; the asset class can turn maybe 10% plus or minus that kind of band for itself. I think the pattern for crude over the next two weeks is more of a consolidation and a gradual slide lower, but the broader message it sends is that the volatility and peak in crude is now behind us. We could now look at a phase where Crude can start to gradually drop lower and perhaps back towards $80-85, which was actually the starting point where the rally started.