Nifty close below 18700 to trigger a sell-off; outright collapse unlikely

Nifty close below 18700 to trigger a sell-off; outright collapse unlikely

By Anand James

Last week, Nifty not only pushed beyond the record peak that had eluded it for more than year, but also stayed above the same for most part of the week, with low VIX, suggesting how comfortable traders are at these levels. Our contention, while expecting a breach of this level last week, was that a powerful upsides may not follow such a break. And it appears, small and mid caps echoes this sentiment, as only 6% and 3% of mid and small-caps respectively are near 52 week highs. But this is not to say that they have not moved at all in the last week, as 28% of the mid caps and 14% of the small caps closed near the week’s high on Friday, as opposed to 16% for the NSE 500 stocks.

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This assumes significance as Friday’s down close in Nifty resembles an evening star candlestick pattern, raising concerns of a potential correction next week. With such concerns in perspective, we would remain positive on consumer durables and realty, while staying away from power. Nifty on the other may be assumed to have topped out at 18900, if it is unable to close back above 18700, or on direct fall below 18600 on Monday. While an outright collapse is less expected, inability to close back above 18700 on Monday will delay the achievement of 19400 next week, and we could instead be looking at 18380.

(Anand James, Chief Market Strategist, Geojit Financial Services. Views are author’s own.)