Jul 13 2018

Nifty near all time highs and Rupee near all time lows?? – 13Jul2018

The Indian equity indices continue to scale fresh peaks (to the surprise of many). Globally, when there is a sense of gloom and doom (reflected by the recent plunge in some Asian and European indices as well as capital flight to safe havens), surging Indian equities come as a breath of fresh air (or is it a warning sign!!).

 

The recent surge in Indian equity indices have completely ignored global (and some local) developments – surge in crude prices, never-ending US China trade war, no so great Indian economic numbers, etc. Moreover, the rise has been contributed primarily by some Nifty heavyweights like TCS, Reliance, Infosys, HDFC Bank, HDFC (their combined weight on the Nifty is around 35%). This tends to indicate that the rally is stock specific and not broad based.

 

Indian equities are scaling all time peaks while the Indian currency is nearing its all-time lows. Paradoxical.

 

On the Nifty daily technical chart, momentum indicators are inching towards its overbought territory. There are visible price gaps (pink horizontal lines) in the recent run up – first at 10860-10876 and the next at 10976-10999. A Shooting Star# was formed yesterday – such a candlestick pattern formed at an uptrend usually tends to indicate a price reversal. My sense is that the all time peak of Nifty (11171) will be a critical resistance area and there could a corrective decline towards 10500 (to say the least). Buying a Nifty Put will be a wise idea.

 

If Nifty breaks above 11170-11180 and forms a fresh all-time high, the above assessment will be rescinded.

 

#Shooting Star is a candlestick pattern having a small body, a long upper shadow with little or no lower shadow. Long upper shadow indicates selling pressure. Formed at an uptrend, such selling pressure has bearish connotations.