TECHNICAL ANALYSIS: Make hay while the sun shines

By VK Sharma

The headline indices don’t tell you the whole story. The Nifty gained a mere 0.07% for the week gone by at 18,534. But the mid- and small-cap stocks were buzzing. While the NSE Midcap Index cantered 1.62%, the NSE Smallcap Index galloped 3.10%.

The Nifty, on the other hand, was largely muted. It is still a good 353 points away from its all-time high of 18,887 registered on December 1, 2022. Four of the five candles have been red, which indicates the benchmark opens higher but closes lower; it still managed to gain in the week. It seems to be biding its time to jump higher. The next resistances are at 18,662 and 18,887.

Also read: Gold registers first weekly advance in four, dollar falls; resistance seen at Rs 61,200

Strong support for the Nifty exists at 18,430 from the trend line formed by joining the lows made on March 28 and May 19 this year. This trend line was tested on May 25, and the Nifty took support and bounced back the same day. In the last week, it has kept a safe distance and hasn’t come near. This indicates it is now crouching to jump higher.

Meanwhile, the US markets rallied on Friday. This rally was attributed to a surprisingly robust May non-farm payrolls report, a resolution of the debt-ceiling deal stalemate, and bets that the Federal Reserve Open Market Committee will skip hiking rates at the meeting on June 13-14.

The May payrolls came in higher at 339,000, which was better than the expected 190,000 — making it the 29th straight month of positive job growth. The unemployment rate rose to 3.7% in May against the estimate of 3.5%. But what the markets liked the most was that average hourly earnings grew at a slow pace of 0.3%, as against 0.4% in April. A lower increase could lead to a cooling in wage inflation. This indicates a robust labour market, which is softening gently and not rapidly. That’s exactly what the Fed would like to see.

Interestingly, technology stocks in the US are having a disproportionate impact on the markets. The Dow Jones Industrial Average declined by 0.98% from April 28 to June 2 — the 700-plus points surge on Friday notwithstanding. During the same period, the Nasdaq 100 rose by a whopping 9.82%.

With the results season over, the small- and mid-caps will no longer have this very potent trigger for the coming weeks. However, investors should remember that stocks have been woken up from their slumber. Some stocks may see a correction, only to move higher after shrugging off the weaker hands. Stay invested with your relevant stop losses.

Also read: A global play on India’s largest imports – Oil & Metals

Make hay while the sun shines.

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

The Nifty gained a mere 0.07% for the week gone by at 18,534. 

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