Sensex breaks out of consolidation, time correction in benchmarks ongoing; Bank Nifty to reverse downtrend

Sensex breaks out of consolidation, time correction in benchmarks ongoing; Bank Nifty to reverse downtrend

By Anand James

Sensex broke above an excruciatingly tight trading range that had prevailed since the fourth of July, succeeding in yet another record closing last Friday. Standard deviation studies set an upper range of 66,685, which is understandably modest given the fact that the recent range has been tight. However, the ratio of 50 to 200 DMA is fast shifting to the upper extremities that usually warrant a mean reversion down move. It is with this caution that we will enter the next week’s upsides.

Further, this phase was dominated by major news flow in two Nifty heavy weights, namely HDFC Bank and Reliance, which muddied the technical views on Nifty, as rebalancing and rerating impacting chart based set ups. The move away beyond the 19,500-19,380 band will however give control back to chartists, setting new directional plays. VIX under 11 has given a calm to upside views, but we expect this metric to see upticks once the 19,660-750 band is seen.

Bank Nifty outlook

Though Bank Nifty saw a new peak much earlier than Nifty 50, the moves since then, had hardly evoked confidence or reflected a secular bull run that was widely expected. Though collapse fears never turned real, as major dips in the last two months always found solid buying interest, the index traders have certainly persistently shown disinclination to chase prices higher. The hot and cold approach from HDFC Bank has been one reason, and we will await its Q1 numbers, before taking a directional call on the index. That being said, Friday’s hammer close suggests that a 5 day downtrend is likely to be reversed.

Currency outlook

Last week, despite the vertical rise in USDINR, there was no excitement to follow through and expect a breakout move beyond 83.25, as it had disappointed many times, six to be exact. So the sharp pull back all the way under 82 was not surprising. However, we are yet to see a sign that 81.5 vicinity will give away, exposing 80.6. Instead, the 81.9-81.7 is highly likely to arrest downsides and help recovery swing higher.

(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing)