Markets near days high; Nifty Realty & Metal shine

Market Update at 02:55 PM: The key benchmark indices traded near their intraday highs with Nifty & Sensex gaining 0.65 per cent and 0.68 per cent, respectively.  

Majority of the sectoral indices were trading in green with Nifty Realty, Nifty Metal, and Nifty Bank being the top gainers. Nifty IT and Nifty Pharma have been laggards so far as they are trading with minuscule losses.   

The first week of July series turned out to be a tepid one just like the second half of June series as Nifty continued to trade in a range-bound movement.  

Last week, Nifty moved in a band of 15,636-15,915.65 and closed in red in almost four out of five trading sessions. However, the range of all the down days remained lower than its 10-day average range. As a result, Nifty’s weekly range remained restricted to 279.70 points, which is the lowest in the last three weeks. Meanwhile, the broader markets outperformed as Nifty Midcap-100 and Smallcap-100 advanced by 0.5 per cent and 2.2 per cent, respectively.  

You might have started receiving calls from many analysts that the markets are exhibiting a classical distribution pattern at a higher level as it marked a fresh all-time high at the beginning of the week. However, soon, it retraced from its all-time highs with four consecutive red days. In addition to this, Nifty had breached its 20-DMA and also, added a distribution day on Tuesday.   

Observation is required to understand what the market is doing. To observe what the current conditions are, one must take a look at the multi-timeframe chart in conjunction with other important parameters to understand what smart money is trying to do.   

On a weekly chart, Nifty has maintained its rhythm of higher high & higher low, which is a clear uptrend sign as per the basics of Dow Theory. Though on the weekly chart, it had formed a red candle, which is not ominous but a sign of cool-off after an exuberated performance in the week before this one. While on the daily timeframe, Nifty took support exactly around the 61.8 per cent retracement of the previous rise from 15,450 to 15,915.65 and interestingly, this support was in conjunction with the daily lower Bollinger Band. On Friday, it formed a hammer-like candle and if one looks at the line chart of Nifty, which help us to filter out the noise, it clearly communicates that the level of 15,680 on a closing basis is a crucial level to watch out for!   

India VIX dropped to around 12 levels from about 15 in almost one week. The level of 12 by far, is the lowest level seen in a long time. This clearly indicates that there is an absence of fear among the market participants. So, in a week, where markets had four negative closes, ideally, VIX would have risen; however, it declined significantly. So, simply put, it takes time for the trend to reverse. It does not reverse with just a few days of fall and that too, with the range being below the 10-day average.   

In the near term, 15,915-15,600 are the key resistance and support levels. Within the last hour, short-covering resulted in a hammer candle formation. Let us wait and watch for confirmation of this bullish candle. In any case, if it fails to get a confirmation by closing above 15,738, then Nifty might dip back towards the lower end of the range. A close below the 15,650-15,680 zone is a big negative for Nifty. The next level of support for Nifty would be at 15,431.