Short term bearish below 8250

After two weeks’ of smart rally, Nifty moved in a small range (only three trading sessions) and closed in the green. In view of the narrow move last week, it could witness a huge up move with wild swings once it breaks above or below the last week range.

A directional move is possible during the week after last week’s narrow move. IIP numbers and WPI/CPI inflation numbers would be announced during the week which would influence the market. However, RBI’s indication that rate cut could further time could dampen the spirits. Fall of crude oil prices to a multiyear low and consequent effect on inflation etc. would make a strong case for rate cut which would revive the economic cycle.

Market seems to be having best of both i.e., reforms from government and falling crude prices. Improved corporate performance too would come in soon which is being discounted by the markets. Despite these positive factors, market is fully priced and stock picking is the only way to perform in the market.

Next big event is Budget and big bang reforms can be expected in the budget. A path breaking budget is being expected. Nifty is once again above all short term moving averages and is in fact at a new ‘high’. However, in view of the overbought position, traders need to be vigilant and high degree of caution with proper risk management is necessary. 20 DMA, 50 DMA, 100 DMA and 200 DMA are placed at about 8020, 8015, 7835 and 7215 respectively and would act as supports / resistances.

Based on the present Government’s agenda, Infra and Power sectors could come out of their problems soon. Stocks of promoters with proven record may be preferred in these sectors. Investors need to accumulate quality stocks while traders need to be ever vigilant. Nifty continues to be above 200 DMA and 50 DMA too is above 200 DMA (Golden Cross) suggesting that the long term bullish trend is intact. Nifty is quoting at a PE of about 21.60, which is about 20 per cent above the long term PE multiple.

However, earnings would go up further once falling metal / crude prices would find their effect in the corporate results. Market discounts future in advance and the present bull market which is more than a year old can be expected to get into correction mode after the next Big event of Budget. However, long term trend could remain intact. Market is usually ahead of fundamentals and fundamentals need to catch up with the present valuations which could take some time. Strong long term support would be around 7200 level and medium term support is 7850. Short term support is at 8250 and Nifty would become weak only on a close below 8250.

For the coming week, Nifty spot is expected to face resistance at 8430, 8520, 8610 and find support at 8245, 8155, 8065. Minor resistances may be found at 8375, 8405, 8425, 8450 and minor supports at 8300, 8270, 8250, and 8220.

For short term Nifty is bullish and would become bearish only if it closes below 8250 and could encounter resistance could encounter resistance around 8525 during the week.

Advice for Traders
Nifty’s uptrend continued for the Third week while the movements were very narrow last week. Current week can be expected to be eventful in view of IIP and inflation numbers which could move the market significantly. On the upside, Nifty is expected to encounter strong resistance between 8525 and 8600 and it would become weak on a close below 8250, In view of the smart up move in the last Three weeks, only strong positive news can move the market up. Otherwise, it could get into consolidation or correction. Stock specific approach may be followed