Markets may be due for a reaction

CNBC-TV18s Head-Markets Research, Anuj Singhal - Nifty has rallied 17% in last 5 day. Under any circumstances, whether in bull market or in bear market, that’s a very strong rally and even if the near-term direction for the market may be up, we cannot rule out a reaction for a day or 2 that may take Nifty back to around 4200-4300 levels from where some of the bulls might become active again.

These last 5 days have been marked with huge short covering in earlier part and big buying in latter part, by the FIIs. In fact, FIIs have net bought nearly Rs 10,000 cr of Nifty futures in last 5 days. No surprise then that even the August futures are trading at 14-point premium

More astonishing has been the way PCR has surged. From 0.96 to 1.44 in these last 5 sessions and in Wednesday’s trade we saw huge unwinding by call writers and huge put writing with levels moving upwards and upwards. This PCR is now approaching the overbought zone, as technically this is still a bear market rally and not the resumption of the uptrend

As expected, banking has been doing phenomenally and if the global mood was to remain positive and the markets here do extend gains, some of the banking stocks can still see 30-40% jump without looking expensive, that’s been the kind of carnage we have seen in the sector. And even while there may be debates about power valuations, from pure technical analysis, these stocks too can extend their rally

Of course, the ADAG pack has all of a sudden become very active and some of the stocks have seen huge speculative build-up. Would be interesting to see how the likes of RNRL and Rel Cap do from current levels

DISCLAIMER: The author is not allowed to trade in equity markets including Futures and Options. His only exposure to capital markets is via shares of TV18 and Network18 granted to him as ESOPs by the company and investments in some long-term mutual funds.