By Anand James
The US greenback is at its strongest in opposition to the rupee, however regardless of the robust transfer on Friday, the greenback index is but to breach the May peak and in a manner recommend that latest information circulation is barely confirming what it had priced in a month again. Now, the rupee is an excellent proxy to the NSE Nifty 50 index, relating to directional strikes within the fairness market. While pink sizzling inflation and recession prospects dominate US market readings, India has had just a few constructive information circulation after Friday’s shut by the use of April IIP, which rose to eight month excessive, and unemployment price dropping for second consecutive month in May in line with CMIE.
FIIs are clearly positioned for extra downsides alongside each money in addition to derivatives. While the persistent promoting in money over the weeks on finish is effectively storied, the derivatives’ positioning is now near extremes. In the index future phase, their lengthy positions are 20.6%, which is near the bottom this yr. In the index possibility phase, 58.54% of the lengthy positions are in places, whereas about the identical proportion of the brief positions are in calls. While all of those are primed for a market large fall, being at extremes recommend that falls won’t be sustained, as traditionally, such positions have nearly all the time been adopted by sharp reversals.
Meanwhile, India VIX, although close to 20, has been on decline from May’s peak of 25.6. Infact, VIX at 20 is no longer a rarity in any respect, having pushed above the identical, from beneath, no less than 6 instances since September 2021, suggesting that merchants have systematically bought acclimatised to a better volatility surroundings. Also, when put in perspective, present VIX ranges recommend merchants are unlikely to be as a lot shocked as in 2020, the place VIX began rising from a benign sub 15 ranges in January, earlier than peaking to 83.6 in March, courtesy Covid.
With these in perspective allow us to take a look at how the NSE Nifty 50 index is poised. We are actually 13% beneath the report peak of 18604 and have since had temporary forays beneath 16000 twice. On the primary event, which was in March, the restoration was not solely fast, nevertheless it was additionally steep, rewarding the bulls with a 15% return. The second event, which is unfolding now, has not been benevolent to the bulls, as bears by no means left the ring, retaining advances in examine nearly all the time. The finish outcome has been triangular and wedge patterns which mirror moderately lengthy durations of consolidation, but in addition level to probably robust directional strikes. While the undertone for Monday is clearly unfavorable, a detailed above 16160 might assist us maintain religion with the bulls. Inability to take action might resign the pattern to a sideways band with draw back bias. We aren’t but satisfied of a cascading fall. At least not but.
(Anand James, Chief Market Strategist, Geojit Financial Services. Views expressed are the creator’s personal.)
Source: www.financialexpress.com”