Take a contra bet of trading short around 10,900 with a final stop loss at 10,985 and one can take a bullish bet if markets fall either to 10,530 or 10,330
The Nifty50 performed as per expectations last week as it reversed from 10,980-11,020 and later recovered sharply from lower levels.
However, retracement while correcting was larger than expected, which has again kept the market uncertain whether it will cross the previous immediate highest level (10,985).
Comparing the trend of large-cap stocks with the trend of Nifty, we conclude individual stocks are lagging heavily while moving to their immediate highs. It could make task tough for the index to establish a new high above the level of 10,985.
This opens room for two scenarios.
First, the market would cross 10,985 in the next couple of trading sessions, which is less probable but given the recent rise in volatility, nothing is impossible and that is why we are keeping options open.
Second, Nifty would fall from 10,900-10,950 to form a higher low compared to 10,333 and make a final move towards 11200-11300.
In both the scenarios, the case of a move toward 11,200 remains intact.
However, holding the level of 10,333 is very crucial for the Nifty to keep the possibility of the last push towards 11,200-11,300.
In case the Nifty breaks 10,333, then it would be grossly negative for the market as it would even send the index below the mark of 10,000. Now we will consider, in the coming week, probabilities that would compel Nifty to fall below the level of 10,333.
The trend of world markets, quarterly results, movement of currency as well as crude oil and monthly auto numbers would dictate the future trend.
World markets, crude and currency have already corrected to their extreme and we are of the view that they should consolidate before falling below the level of their previous lows.
Third quarter results would kick in from January 10, hence no impact in the current week. We are of the view that auto numbers are going to disappoint the street which market has already discounted.
Events that would turn positive are missing and there is no remedy for unforeseen events.
Based on the above observations, we can draw conclusion that the market is going to consolidate before heading towards the last push above 11,000.
Take a contra bet of trading short around 10,900 with a final stop loss at 10,985 and one can take a bullish bet if markets fall either to 10,530 or 10,330.
The author is a senior VP, Technical Research, Kotak Securities.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.