Markets are getting heavy | The Financial Express

Markets closed the week, month and the quarter with a flourish with the Nifty closing at an all-time closing high of 19,189. It gained 2.80% for the week, 3.53% for the month and 10.54% for the quarter. The tally of stocks above their 200 DMA amongst the NSE 500 has surged from 67% a fortnight ago to 76%  as on June 30.  So where do we go from here?

The previous all-time high was 18,887, which also happened to be the 50% Fibonacci swing extension. The next likely resistance could come from the Golden ratio, which is 61.8% Fibonacci extension at 19,374.  Considering that the highest open Interest in the July series is in the 19,500  Call , this gives us a likely resistance zone of 19,370-19, 500. Now consider some of the other data points which could indicate resistance ahead.

The first is that we have begun the July series with the highest ever open interest in stock futures at  526 crore shares, the highest since February 2018 series.  Secondly, the long -to-short rato of the FII index futures  has ballooned to 2.25 from 1.36 in June. Thirdly, since 2017 we have not seen more than three back to back series gains in Nifty. 

The last three series have all closed with gains. I am of the view that while the above are valid observations, one need not throw in the towel as yet.Consider this. We have made a new high in stock futures open interest  after a long gap of over five years.  So what’s the big deal?

In terms of long-to-short ratio, we have seen higher ratios as well. Before 2017, there have been instances of not only  four but upto nine back-to-back series gains. However, we must admit that coming together of multiple  trigger points does increase the chances of break in the chain of gains after initial progress in the July series. Meanwhile, US markets have cheered on the signs of a cooling inflation.

A commerce department report showed  that the personal consumption expenditures index advanced 3.8% versus April’s 4.3%. The data fuelled hopes the Fed could be near the end of its rate-hiking cycle.This comes on the heels of hawkish remarks from Fed Chair Jerome Powell and strong economic data earlier this week that boosted bets the Fed would keep hiking rates.

A notable feat was the Nasdaq posted its biggest first-half gain in 40 years  while Apple closed with a $3-trillion market valuation. While investors can confidently remain invested, traders should use stop losses.

(The writer has over three decades of experience in capital markets. He is former head of private clients’ group and capital market strategy at  HDFC Securities)