Tiredness in Nifty creeping in, time-wise correction could be seen in short term

Currently, huge disparity is seen between the current price of the index and 200-DMA. Such deviation tends to narrow, so, time-wise correction could be seen in near term.

December 20, 2020 / 08:06 AM IST
 
 
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Fast-paced move since November is too much to digest for some but the fact is that equities are outperforming bonds (Nifty GS composite index) & MCX Gold. Inter-market analysis shows that positive traction continues in equity markets. Lately, select few index biggies are pushing the markets higher. This trend was evident this week as HDFC & Bajaj twins got hold of the proceedings on Dalal Street while other stocks witnessed profit booking. After a broad-based rally for last few weeks, a switch back to few index heavyweights is a typical trait in a bull market.

Presence of multiple indecisive candles at the top is seen in Nifty which suggest that tiredness is creeping in, yet it has not confirmed a sign of reversal. Currently, huge disparity is seen between the current price of the index and 200-DMA. Such deviation tends to narrow, so, time-wise correction could be seen in near term.

Breadth (i.e. Nifty constituents trading above 200-DMA) in Nifty 50, Nifty Midcap 100 & Nifty 500 indices are at an extreme peak. But historical evidence has shown us that breadth can hover around overbought territory for a long time in a bullish market. Correction in long-term Nifty breadth in such up-trending market tends to provide opportunities in stocks.

Meanwhile, slowdown was at play in short-term breadth of Nifty Midcap 100 index. As of Thursday's close, 85 percent of Nifty Midcap 100 constituents were trading above 20-DMA, i.e. lower than 97 percent at the start of December 2020. Despite Nifty notching up gains for seventh consecutive week, recent action on index can be termed as choppy. Ideal strategy to follow in such type of scenario is to shift focus more on sectoral trends which are relatively holding ground, immediate support for Nifty is seen at 13,600 zone.

Nifty Financial Services index gave a consolidation breakout this week led by gains in HDFC & Bajaj Finance. Ratio of Nifty Financial Services/Nifty has bounced off the support of its 21-EMA and is currently attempting surpass its earlier peak. Sustenance above the same would result in continuation of outperformance of Financial Services stocks against the Nifty.

Close

BankNifty was a big disappointment this week as it failed to surpass multiple hurdle zone placed around 31,000. Ratio of BankNifty/Nifty has been consolidating since mid-November 2020 around mid-point of the entire fall from February 2020 to May low. The above structure could be termed as an action of time-correction post strong comeback of ratio in last few sessions. With sectoral churning taking place on Dalal Street, banks are taking a breather.

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.
Pritesh Mehta is a Lead Technical Analyst - Institutional Equities at YES Securities. He holds a Master's degree from NMIMS. Prior to this assignment, he was associated with IIFL for 13 years as one of their lead technical analysts. His skills and forte include in-depth technical analysis and identifying actionable momentum trades. Pritesh excels in trend identification, with a special focus on inter-market analysis, gann & ratio charts.
first published: Dec 19, 2020 03:46 pm

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