Nifty's way beyond all-time highs looks foggy as traders go cautious

Analysts advise that traders should keep an eye on the aforementioned levels for the weekly expiry trade.

Market opinion is mixed on the Nifty's road ahead after scaling an all-time high as its struggle to regain its peak left traders cautious.

The Nifty 50 index traded at 18,888.35 at 10.15am on June 28, up 0.38 percent from the last close, and hit an intraday high of 18,908.15.

“I don’t see any new leg of the market rally,” said Rajesh Srivastava, a Bengaluru-based derivative trader, who expects the Nifty to not move much beyond 19,000 level. “A trader has to be stock-specific from hereon.”

Bank Nifty, which has hit an all-time high but seen selling pressure at the peak, seems weaker than the Nifty now. Given the heavy weight of bank stocks in Nifty, the index will, also feel pressure, he said.

The Nifty50 has turned full circle in the last 20 months. It had sailed from 18,477 in October 2021 to an all-time high (intraday) of 18,888 in December 2022, and then the ongoing rally.

For the peaks attained in October 2021, December 2022 and June 2023, the Nifty surged 36 percent, 23 percent and 10 percent from their respective previous bottoms. This signals that gains before each respective highs are lessening with time.

Again, successive rallies to all-time-high levels from bottom are getting shorter.

Traders and analysts pointed out that this is indicative of supply around the all-time-high levels. Moreover, some believe the last all-time high - when market hit highs in December 2022 - was not a breakout in traditional sense, rather a failed breakout.

"I will wait for a convincing breakout - next days of low after hitting all-time high being higher than the previous day's close - before taking any trade," said Milan Vaishnav, an independent technical analyst. "I expect Nifty to move higher after a breakout happens."

Chances of a clear breakout happening are lower, he added, citing the overall market breadth being non-encouraging, precariously low VIX levels that is not in consonance with previous breakouts revealing a sense of complacency in the market, and lack of participation from banking and financial stocks.

Also read: Bank Nifty raining on Nifty parade. How should traders position themselves?

In the past, when the market was hovering around all-time highs or making a breakout, volatility been high. The India VIX at 11.38 does not instill confidence in the market's momentum.

Selloff in broader market?

While the benchmark index has reclaimed the summit again in June 2023, the midcap and smallcap indices have outperformed the benchmark as compared with the December 2022 peaks. It means that while the Nifty was trying to reclaim a peak, broader markets surged to unchartered territories. The Nifty Midcap 100 and the Nifty Smallcap 100 are up 8 percent and 6 percent since December 2022.

Srivastava expects a rush for booking profit in broader market stocks. Others like Vaishnav, also want traders to avoid stocks that are "too hot" as some profit-taking will be expected, referring to those that have seen massive buying in recent months.

Some mutual fund managers are also taking action that analysts believe is a sign of froth in the segment. For instance, Tata Mutual Fund has announced that it has decided to stop accepting lumpsum amounts and switch-in investments in Tata Small Cap (TSC) Fund from July 1.

Manas Jaswal, another independent technical analyst, said he will be going long after the Nifty breaches the all-time-high level. He expects the index to rush towards the 19,000 level within a week or two.

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