Banks To Lead The Charge Higher

In the last week article, the advice was to look before we leapt. The market was indeed quite selective as had been indicated. The indices gained, with Bank Nifty doing better than the Nifty as the component stocks turned in a better performance. HDFC Bank, IndusInd, Axis Bank declared decent numbers and the market was happy to receive them with some mark-ups. Although the wow factor was missing from private banks, the market remained happy. Financial services stocks, too, turned in a decent set of numbers among the few that came out so far. But the field was really dominated by the power action seen in PSU Banks (up nearly 11% for the week) and had they better weightage on the Bank Nifty, then we could have seen some powerful pattern set up there. Nevertheless, with a 3.7% advance for the week, Bank Nifty continues to acquit itself well. The intra-day detailed chart of the index features the Bank Nifty this time. (See chart 1).

This time the trading has been fairly linear and, hence, money making would not have been difficult for traders. Those that didn’t do well should think about their methods, stops and quantity. When markets are more linear, then it is best to trade one side of the trend and, for this week, it was up for three sessions and down for two. Three gaps were in favour and one against the bulls. The VIX was down by around 5% and that too attests to the non-volatile nature of the movement.

Breadth was decent. Banks, auto, cement and telecom saw good gains by component stocks. The breadth was decent in the retail patronised segments of mid and small caps as well. In the last week, it was mentioned that the MidSmall400 index was looking a bit iffy with its trends. One is happy to see the index make some attempts to hold on to the levels and try to stave off any pressures to the downside. Another point made last week was that this looked like a pop-and-drop market. But so far the market has not been interested in dropping—even though not street-beating results have come through so far. Clearly, there are pressures on different sectors with the inflation and other factors but the market seems ready to take this in its stride as yet. One of the positives is that there haven’t been any howlers so far—everything has been either at par or slightly better. Seems like expectations are not too high and people are more hopeful that companies shouldn’t show damage to their working. So far, that expectation has held and so the market is steady to better.

On the weekly charts, the Bank Nifty has seen a better build-up for the coming week. The RSI indicator has pushed through above 60 levels in the week gone by as also strengthened above 60 in the weekly chart as well. The AX line is just about to pick up trends while the DI lines are situated rather well on the weekly charts. Both these, combined with the price action, suggests that we may see more action in the week ahead by the banks. Chart 2 shows the situation in the weekly chart of Bank Nifty.

On Thursday, the FPIs bought a substantial quantity of options (over 15,000 crore) and it has been noted on past occasions that such large figures (they generally range around 3,000-5000 in a day), the market has tended to give a large move. The last occasion when this happened was on Aug. 29, after which we saw the market rise sharply for the next few sessions. It has set off nicely on Friday. Can expect it to continue further in the week ahead?