Nifty reclaims key milestone of 10,800, Sensex soars 400 points. 5 factors why the market rallied today

Technical Factors:

The Nifty witnessed a strong breakout above 10,770 in intraday trade on Thursday which was acting as crucial resistance for the index. The index reclaimed 10,800 levels and the next target is placed around 10,900 levels, suggest experts.

On the daily chart, the index seems to have found support at the lower band of the rising wedge which has led to a rally of 100 points. The trend looks positive as Nifty managed to float above 50-exponential moving average (EMA).

“The momentum indicators MACD witnessed a bullish crossover and is currently hovering above the signal line. Oscillator such as RSI is in a bullish crossover with no visible divergence on the daily chart,” Achin Goel, Head of Wealth Management and Financial Planning, Bonanza Portfolio Ltd

“Going forward, the bias is looking slightly on the positive side and the up move can extend towards 10,770. A conclusive move above 10,770 may result in a movement towards 10,910. While on the lower end, the support is visible at 10,550 below which the current short-term uptrend may reverse,” he said.

Crude oil:

Crude Oil might have risen slightly in the past few days but it trading well below the $80/bbl market which it hit last month. Crude oil is now hovering near $75/bbl which is good news for oil importing country like India.

From an economy point of view, rising crude prices are an assertive risk for any country and its investors. Oil prices directly impact the real income and spending of all the sectors operating in an economy.

As per the past economic survey by market agencies, it was estimated that every $10 increase in the oil price dents the economic growth by around 0.2-0.3 percentage points. The higher oil prices will result in higher WPI which would lead to a tighter monetary regime with higher interest rates reducing the real returns, suggest experts.

"Difficult to take a near-term call on crude oil prices, but our base case assumption is that crude could average around close to USD75-80/barrel over the next couple of quarters," Gaurav Dua, Head of Research, Sharekhan told Moneycontrol.

Trade wars

The United States government had last week announced imposition of import tariffs on steel and aluminium from its allies. This had largely irked them, which had in turn raised fears of trade wars as well.

But the concerns seem to be waning off after reports suggest that representatives from these nations are likely to have discussions at the G7 summit as well.

White House economic adviser Larry Kudlow said late in the trading day that US President Donald Trump will meet French President Emmanuel Macron and Canadian Prime Minister Justin Trudeau during a G7 summit this week.

While he said Trump is not backing down from the tough line he has taken on trade, the comments appeared to calm investors.

Earlier reports citing sources said U.S. officials were weighing an offer by China to import an extra $70 billion of American goods over a year as Beijing tries to defuse a potential trade war.

Trump last week pushed on with imposing tariffs - 25 percent on steel and 10 percent on aluminium - on Canada, the EU and Mexico, with Mexico retaliating by putting tariffs on American products such as steel, pork and bourbon.

Global markets

A rally in global markets could have also spilled over to the equity markets here.

The Dow Jones industrial average closed 346.41 points higher at 25,146.39 with Boeing rising 3.2 percent and contributing the most to the gains. The Dow also closed above 25,000 for the first time since mid-March.

Asian shares, meanwhile, closed higher on the back of positive handover from Wall Street. The Nikkei 225 advanced 0.87 percent, or 197.53 points, to close at 22,823.26.

Monsoon

The onset of monsoon in India is also likely to have cheered investors. The season begun earlier than expected, as it hit Kerala on May 29, two-three days ahead of schedule. A good monsoon results in better rural income and a boot to the economy. These are seen as positive cues for the market to react ahead.

Monsoon is likely to reach Maharashtra and Goa in the next two days, the India Meteorological Department (IMD) said today, with a private weather forecasting agency predicting sustained heavy rains later this week. Rain over the western coast, especially in Mumbai, is likely to peak between June 8 and 10, private agency Skymet said.

However, the government said as monsoon is strengthening, increased rains were expected from June 7 in Kerala, coastal Karnataka, Konkan belt and Goa. It also warned of "possible flooding" from June 10 onwards in these areas.

Monsoon, which made an onset in Kerala on May 29, three days before its scheduled arrival, has advanced in some parts of Tamil Nadu, and southwest, west-central, east-central, northeast of Bay of Bengal, and in most of the northeastern states, the IMD said.