Date: September 19 | Extent of loss: 470 points (1.29 percent)| Reason: Concerns over rising geopolitical tensions, crude oil prices, uncertainty over US Fed's future rates trajectory, and the deteriorating macroeconomic environment kept the risk appetite of investors low. (Image: Reuters)
It was a short week for the market, but Nifty remained highly volatile within the range. It failed to surpass 11,800 but managed to survive above 11,648, which is the highest low of the current up move. The close above the highest low of the current up move is positive for the market.
On 25th April 2019, Nifty formed a lower high and quickly reversed, which was negative for the broader market.
Since then, the Nifty has not fallen, even though the market breadth remained weak. It implies that the market is consolidating, narrowing its range and preparing to break the level of 11,800 decisively.
However, until the market is not crossing the same, we should be a buyer at supports or at a break out with a minimal stop loss.
Contra traders should look for short selling opportunity around 11,750/11,760 with a final stop loss at 11,810. Our view is to trade in one direction as the market trend could puzzle and make it extremely difficult to move with the tide.
For the week, trend followers should look to short if Nifty drops below 11,630. Buying is advisable above 11,810 as it would move to 11,900 or even 12,000 without any major difficulties.
Below 11,630, the index has multi major supports at 11600, 11580, 11560, 11549 and 11500. However, short term trend followers must take a short bet on the index below 11,630 keeping a tight stop-loss at 11,700 for the same.
Our take for the week is to trade on both sides of the market with a minimal stop loss. We are hearing a lot of chaos on the street that very few stocks are keeping Nifty higher, which is not positive for the market.
As per our observations, ahead of every major event only a few stocks dominate and keep the market higher. The reason behind is “careful evaluation of stocks by experienced participants of the market”.
We need to ask ourselves that why would anyone take a risk in stocks which have no impactful weight on the index like Coal India, Cipla, Hindalco, BPCL, GAIL, and ZEEL?
There focus is on the top 10 companies, which are fundamentally sound and have an adequate free float in the market.
Across the globe, the scenario is the same and very few companies that are fundamentally sound help the market to move either higher or lower.
In India, top 10 companies like HDFC Bank, HDFC LTD, RIL, SBI, Infosys, TCS, L&T, Bajaj Finance, HUL, and ITC are contributing nearly 65 percent to the index and which is the reason why ahead of major events, we see activity in few stocks.
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.