Which Way Ahead?
Dear optimist, pessimist and realist: While you guys were busy arguing about the glass of wine, I drank it! Sincerely, the opportunist! This has been the state of opportunist investors lately. It’s about taking the opportunity when the door opens, even if it’s just a wide crack. Even as the world kept talking how the virusdriven pandemic has given the globe a massive shakedown, opportunist investors have grabbed the prospect with both their hands given the fact that along with the equities, gold and silver prices have been booming too.
Gold, in fact, has lived up to its character as an asset class of anxious times by staging a major rally that saw it entering into uncharted territory on MCX October contract when it crossed the milestone of Rs 50,000 while silver, its peer, displayed a brisk pace too even though it had frustrated investors for nearly six years with its price going absolutely nowhere. The transformation was quick and unfolded within a matter of a few weeks. It provides positive testimony for technical analysis and as the saying goes, ‘the bigger the base, the higher the space’. It has certainly proved true of silver which topped at Rs 60,000.
To come back to the Indian equity markets, the raging bulls seemed unstoppable as they logged a strong five-day period aided by better-than-expected earnings from index majors such as fast moving consumer goods (FMCG) and banking with Britannia Industries and HDFC Bank leading the pack. Further, European Union leaders sealed a Euro 750 billion recovery fund to revive regional economies ravaged by the corona virus rally even as vaccine trials showed early promising results.
It finally faced its first real resistance around the level of 11,200-11,240 on Wednesday where heavy call writing was concentrated. However, the Nifty index cooled off from the 11,200 mark while the Indian VIX did not witness any noticeable or alarming spike, thereby clearly indicating that it was routine profit booking. Further,despite breaking the prior bar low, the index did not close below the low of the prior bar, which further reaffirms that it was a healthy correction. Meanwhile, how are the global markets performing? Equity markets across the world are having a dream run thanks to non-stop liquidity measures announced by central banks.
The Dow has reclaimed its 27,000 mark and S & P 500 recorded a new five-month closing high. In the US, the tech-heavy Nasdaq has retraced over 100 per cent of its drastic fall witnessed during the early part of the year and is trading at nearly 9 per cent above from its previous high. While the Dow Jones is still trading lower by 8.66 per cent from its previous high, it has retraced 78.6 per cent of the fall of 2020. Japan’s Nikkei 225, Germany’s DAX and India’s Nifty have retraced nearly 78.6 per cent of their fall with DAX trading 4.56 per cent away from its high. Nikkei is about 6 per cent and Nifty is nearly 10 per cent away from their highs.
Brazil’s BOVESPA, France CAC 40, and UK’s FTSE 100 have retraced nearly 61.8 per cent of their fall while Hong Kong’s Hang Seng has retraced 50 per cent of its fall. With this sharp and swift bounce-back witnessed from lower levels in the markets, investors are thus caught in a quandary. There are some very similar questions in every trader and investor’s mind: What to do now? How does the scenario look? How much higher will the market go? Let’s look into the seasonality and technical parameters to get some idea about how the road ahead looks like.
According to available data, the Indian markets are about to enter a seasonally lacklustre month i.e. August. The last 11 years’ data suggests that the month of August has provided an average negative return of -1.04 with two drastic falls seen in 2011 and 2015 when markets plunged 8.77 per cent and 6.58 per cent, respectively. This seasonality reading aligned with the overbought conditions on technical parameters indicates that the index might see some dull movement. But yes, we do not rule out stockspecific action. The level of 11,270-11,380 is likely to act as a resistance for Nifty.
