Nifty Technical Outlook: A Reversion To The 20-Week Moving Average Is On The Cards

After ‘walking’ the upper Bollinger band for an impressive 6 consecutive weeks, the NIFTY finally took a much-needed breather last week, correcting below the 11,600 mark. We also witnessed a definitive momentum crossover on the stochastic oscillator, signalling that the index is most likely starting its short-term descent towards its 20-week moving average which appears to be around the 11,100 mark.

Th fact that the Top 10 NIFTY companies lost over Rs. 75,000 crores in market cap, was somewhat buffered by a rally in tech and auto stocks, as well as metals. CPI and IIP data prints, along with the INR movement and crude prices, are likely to dictate market movements in a truncated trading week. Having dipped to $70 last month, crude seems to have made another strong comeback, trading 10% higher as we speak.

Fundamentally, we remain on a weak wicket. The threat of mean reversion due to the significant overvaluation that’s currently in place, looms large. President Trump seems to be unrelentingly continuing the trade war, slapping on another $267 billion worth of tariffs on Chinese good last week. Crude prices remain high. Earnings growth, although showing green shoots of recovery, is anything but spectacular. The bullish technical trend notwithstanding, investors would be making a very wise move by remaining cautious with their stance towards equities at the moment. Those overweight on equities may want to reconsider their positions and structurally migrate towards a more short-term debt heavy portfolio at the moment.

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