Bulls may cover more distance
The Nifty has moved past its 200-day moving average and stayed above the range for three trading sessions. That makes it a strong crossover
The first hints of what the new US president would bring to the emerging markets came on Thursday. When the Indian market opened for trade on Thursday, pharma stocks opened lower and stayed under pressure. The reason for the gap-down opening was an utterance from the US president-elect that pharma companies might have to shift manufacturing base to the US and bring down drug prices. This statement and the reaction of the Indian stock market was pretty much similar to the ones witnessed a few days back in IT stocks. Most IT stocks have by now recouped the losses they had made when Donald Trump made a statement of intent on H-1B visa.
Traders and investors have to bear in mind that more such statements are going to come in the next few months. While their trading positions might be getting influenced by such statements, their investment positions should not be affected by such statements. Remember that when President Obama took over as president, similar noises were made, but has anything grave happened to the IT companies since? True, the IT companies have come under pressure in the last two years, but that is because of the macro-changes in technology, not because any politician could change the course of the industry. Anyway, be careful before doing a trade, especially on the short side. Trust that India has basic strength in some sectors and that cannot be killed in a day by political noises or statement of intentions.
The earnings season has just begun and some results have come in, but they haven’t shown a major decline in profitability in the third quarter. As we had mentioned before, the results are going to have an element of festive season sales, hence they might not be as bad as was being predicted. Probably market players realise this, and that could be a reason both the broader market indices last week remained in green territory, along with good market breadth.
However, keep an eye on the earnings of some FMCG companies and retailers. If their sales volumes did not dip much, it would indicate things have not been as bad as was being feared. Those numbers, when seen in the light of macroeconomic numbers announced last week, could hurt traders with bearish positions.
Most short-term oscillators are now in the buy mode as they keep moving up either in positive territory or in equilibrium zones. The moving average convergence/divergence (MACD) on daily charts is in the buy mode as it moves up into positive territory. On the weekly charts of this oscillator, the average and trigger lines are converging to give a buy signal. In the past, it had been noticed that the Nifty sees consolidation when a buy signal is about to emerge on the weekly charts.
The 12-day rate of change (ROC) is in positive territory as it inches upward, but the first sign of fatigue has appeared on the charts. Given the formation on this momentum chart, it would be advisable for traders to put a trailing stop-loss on their profitable long positions in the Nifty futures. The 14-day relative strength index (RSI) is placed in the buy mode as it keeps moving up. This oscillator is placed close to overbought territory, which again strengthens the case for having a trailing stop-loss. The other extreme short-term indicators are placed in overbought territory as they move in sideways direction. In any trending market, these oscillators tend to stay in extreme territory for a long period and if this oscillators stays in this zone for a few sessions, it would be a bullish indication.
Coming to short-term support and resistance areas, the Nifty has crossed its 200-day simple moving average and stayed above the level for three trading sessions, which makes this crossover far stronger than the one before. However, for further confirmation of this trend, a long white candle needs to get formed, which will carry the momentum ahead. So, this average, placed at 8,296, becomes the first, and a major, support level for the Nifty. If the index breaks this on a closing basis, then 8,120 has a high probability of getting tested.
As for resistance, the high of 8,598, formed after the US election results, is going to be a trouble spot for the bulls. Any positive surprise on the bottom line numbers of sectors under a cloud of doubt can be a trigger for the Nifty to move past that level. After this, the Nifty could see some profit-booking pressure at 8,800. Retail investors are advised to ignore the Nifty’s swings and stay focussed on quality stocks and use corrections to buy.
rajivnagpal@mydigitalfc.com
Columnist: 
Rajiv Nagpal