Downside Risks Low, Index May Meander Past The 11,200 Mark

The bellwether index witnessed a wildly volatile week, oscillating in a wide band of 500 odd points before settling in to close below the 10,900 mark. Friday’s close was strongly bullish, with the NIFTY witnessing an 88-point jump and midcaps bouncing more than 2 percent on average.

The entire month of August has seen the index closing every week in a tight range of 10,800 to 11,000, further underscoring that strong buying interest does exist below the 11,000 mark, despite the sluggish economy and earnings growth. The trailing P/E ratio of the NIFTY continues to be high, at 26.5 times earnings.

Considering that the momentum oscillators are deep in the oversold territory, we may expect the NIFTY to make a meandering break past 11,200 levels, and gradually head towards 11,500 levels in the coming weeks. The confluence of 200 days SMA is placed at 11196 and the past three weeks high is placed at 11181. Structurally, the index may be very near the pricewise and time–wise maturity of correction. All in all, it may be said that immediate downside risks remain low, and short positions should be avoided at this stage.

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