I am no chartist but it appears that the market is poised at an important juncture, from a trading perspective. We had a fall from around 4,650 for the Nifty to 4,000. The index tested this level twice and has now pulled back to around 4,320. That’s roughly halfway between the recent lows and highs. The next 100 odd points of the Nifty are very crucial for the trader.
While there is nothing sacrosanct about any particular index number, this is broadly the zone where some supply is likely to come in and the index may run into resistance. To prove that this rally is more than just a pullback and that the intermediate trend has turned firmly up again, the Nifty needs to cross this hump.
The other scenario is that the Nifty finds it tough to cross over and gets pegged back again, somewhat, if not all the way down to the 4,000 levels. Then it could get tossed around in this range of 4,000 to 4,300 before making a more conclusive breakout, in either direction.
At such trading crossroads, a catalyst usually helps in lending direction. Since politics has receded to the background, global market moves will probably be the swing factor. This makes it even more interesting as globally too there has been a smart rally. It’s important to see whether there is some reversal in the next couple of days or global markets merely pause and then rally on. If the latter scenario plays out, then the Nifty has a fair chance of climbing above 4,400 and triggering a firm breakout.
If however, any global adversity coincides with its running into a resistance band, then the probability of it reverting into the 4,000 – 4,300 range increases. Unless there is a very sharp global move in the next two days, in either direction, volatility should be expected. That’s characteristic of such trading crossroads, when both bulls and bears — with opposite trading calls, get active. Doubly so, as we are headed into a derivatives expiry tomorrow.
The trading view for September may well be shaped by the action of the next couple of days.
The 4,000-level for the Nifty, which the market has knocked against twice, is being seen as a reliable bottom by most market analysts. It has all the makings of a robust floor: being a psychologically important mark, around the 200 day moving average and representing a reasonable valuation level too to attract long term buyers. Hopefully, we won’t need to test it a third time to check whether it’s strong enough to hold. Twice is quite enough.
(The writer is Executive Editor, CNBC-TV 18)