In the absence of any major trigger, the Nifty for July expiry has been trading in a narrow range of 5,170-5,350, with the average daily trading volume in Nifty futures being 33-37 per cent lower than the average trading volume of the January-June period. The 20-day actual volumes and current and next month implied volumes have reached below 16 per cent, further strengthening the range-bound trading view on the markets. However, any increase in VIX (the volatility index) can be interpreted as a sign of breakout from the trading range.
Short term: In July, FIIs have been net buyers to the tune of approx Rs 6,300 crore (Index futures, stock futures and cash combined) and mutual funds (MFs) have been net sellers to the tune of approx Rs 1,915 crore, thus resulting in a net institutional inflow of Rs 4,385 crore.
Technically, after breaking out above the 100 daily moving average (DMA) on June 29, the Nifty has taken support at the same level, which is currently at 5,164 and might continue to be a support for the short to medium term. A break below this level could take the Nifty to 5,127 and 5,059, which are the 38 per cent and 50 per cent Fibonacci retracement levels of the rally, from 4,770-5,348 in the June-July period.
On the higher end, the market might continue to show resistance at 5,427, which is a 76 per cent retracement of the fall from 5,630-4,770 in the February-May period. A break above this level could create a price momentum, taking the Nifty back to 5,600 levels.
Medium term: As visible in the adjoining chart, the Nifty, after breaking below the 100 weekly moving average (WMA) in August 2011, has been trading in the range as defined by the 100 WMA and 200 WMA (5,400 and 4,850, respectively) with temporary trading below 200 WMA in December/ January 2012 and above 100 WMA in February 2012, which might continue to hold until the market gets some impetus from global events or policy action.
Nifty weekly strategy: For the entire third week of this month (July 16 – 20), the Nifty had a pivot at 5,264, resistance at 5,311 and support at 5,180. Trading was below the pivot for the week and Nifty took support at around 5,180. As the Nifty is entering into expiry week, the market might continue to be range-bound, with more focus on rollovers. For the subsequent week (July 23 – 27), the Nifty has a pivot at 5,210, resistance at 5,252 and 5,300 and support at 5,163 and 5,121. We expect the Nifty to trade in the band of 5,160-5,250 with 5,210 being the pivot point.
Some of the triggers that can possibly take the Nifty beyond these levels are: diesel price hike; RBI policy on July 31, which would be keenly watched as banking stocks have performed rather well in anticipation of some monetary policy action (Bank index outperforming the Nifty by six per cent in the June-July period from bottom to top and the 10-year benchmark G-Sec yield moving from 8.17 per cent to 8.08 per cent); and most importantly, the monsoon for 2012, which is running below its long period average.
The author is executive vice-president & chief investment officer, ICICI Securities Limited
