Navigating the complex terrain of year-end trends; Assessing sector dynamics and overbought conditions

Navigating the complex terrain of year-end trends; Assessing sector dynamics and overbought conditionsBy Anand James

How poised are we to extent the incredulous uptrend that is on? Among sectors, auto and realty appears to be slowing down having taken the baton much early, but my sense is that they are not fully done yet. Meanwhile laggards are catching up, like IT and pharma. But along this theme, metal index has the lowest YTD gains of 13.82%, but our bets are on FMCG, which has so far gained 24.74% this year.

During the last two years, we had entered the last week of the year on a low when compared with that of early December or late November. Unfortunately, we do not have that low base this year, being very close to record peaks. And despite Wednesday’s sharp falls, stocks and indices still carry the burden of being overbought, that should weigh on hopes of a Santa rally.

Friday also succeeded in keeping the bears at bay, that should help Nifty enter the last week on a positive frame. The shortened week could however weigh on the minds, and put a cap on upside attempts as the week progresses.

With this in perspective, we will enter the last week of the year with low expectations of a directional move. Should we hold above 21230, expect upsides aiming 21540, but not much beyond. Alternatively, slippage past 21230 could threaten the 14d ema at 20998 again, or could launch an attack on the gap below 20500.

But consistent with our views on the upside, a collapse is also less favoured this week. Meanwhile, Bank Nifty appears less bullish than what we felt at the beginning of last week, favoured view expects buyers to withdraw perhaps until 46600-46400 region before allowing bulls to regroup and resume the upside trajectory aiming 48900. And as maintained with Nifty as well, expectations of a collapse is limited.

(Anand James,ChiefMarketStrategist atGeojit Financial Services. Views expressed are author’s own. Please consult your financial advisor before investing.)