Markets

The Nifty call: Tread with caution

Akhil Nallamuthu BL Research Bureau | Updated on August 31, 2020

Nifty 50 September Futures (11,585)

The equity market in Asia seems to be under pressure as the major indices, which rallied initially, started giving up gains quickly. The Nikkei 225, that was up by 2 per cent, gave up half of its gains, closing the day with a 1 per cent gain. The other major index, the Hang Seng, which was up by 1.8 per cent at its highest point of the day, is now trading flat.

Taking cues from their Asian peers, the Indian benchmark indices, i.e. the Nifty 50 spot and the Sensex spot indices, after beginning the session with a considerable gap up, reversed the intraday trend quite sharply and are now down for the day by 0.7 per cent and 0.4 per cent, respectively, so far. At the high point of the day, the Nifty 50 and the Sensex were up by 1.2 per cent and 1.4 per cent, respectively.

The market breadth of the Nifty 50 index is suggesting a bearish bias as the advance-decline ratio stands at 16-34. Like benchmark indices, all the mid-cap and small-cap indices are in the red. Consequently, all the sectoral indices are down today, led by the Nifty media index, down by 4.1 per cent, followed by the Nifty pharma index, down by 2.6 per cent.

As the market reversed abruptly, the volatility shot up and India VIX – the volatility index – has gone up by over 15 per cent to 21.1.

The September futures of the Nifty 50 index opened with a significant gap-up, at 11,764, as against the Friday’s close of 11,675. The contract then rallied to mark an intraday high of 11,794. However, the contract was unable to move up further and then it began to weaken. The contract fell significantly and made an intraday low of 11,544.

It has now recovered marginally and is now hovering around 11,585. For the contract to make a meaningful recovery, it should cross over the resistance at 11,635. On the other hand, 11,550 can be a good support.

Hence, until either of 11,550 or 11,635 is taken out, the direction for the rest of the day will be sideways. A breakout of 11,635 can lift the contract to 11,680 and 11,700 whereas a break below 11,550 can extend the downswing to 11,530 and 11,500.

Strategy: Tread with caution since the contract might stay flat for the rest of the day

Supports: 11,530 and 11,500

Resistances: 11,680 and 11,700

Published on August 31, 2020

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