By Anand James
Though Nifty rose to a new record peak, and Nifty Bank has yet to do so, all eyes will be on Nifty Bank after Axis bank fuelled gave the index a strong momentum in the second half of last week. While more than 20% of Nifty 50 constituents already above 70 RSI, indicating an overbought situation, only Axis Bank from the Nifty Bank index is in a similar situation, giving an edge for Nifty Bank in terms of potential for further upmove. But, that said, constituents of Nifty Bank weighing around 60%, have seen delivery volume as high as 60% or more, in the last five days, signaling that a follow through buying in the index may be delayed. Meanwhile, Nifty has already broken the record peak, while Nifty Bank is still more than 3% below its record peak. This suggests more room for upside, which it will certainly catch up, but our bets are on Nifty 50 to move faster, as it finds new leaders, being a more diverse index.
Nifty at new record peak lends new perspectives to the index’s constituents, and should egg them on further higher, despite being close to overbought territories, and the index’s weekly RSI also heading to 90, a level which has historically forced the index to turn lower. However, momentum is still in favour with ADX strong and the directional moving indicators not yet extreme. This allows the window for Nifty to stretch atleast till 20,500-600 before the calls for a turn higher becomes stronger. 20,190/070 or 19,800 could serve as downside markers until then.
Having made projections for Nifty and Nifty Bank in an ideal scenario, let us now also account for the impact of elections on the broader market. As is VIX, an indicator of volatility is showing signs of bottoming out after languishing not far from record low for a substantial period of time. This has so far weakened the traditional correlation between Nifty and VIX, but this is likely to push to a level where the correlation will become more meaningful. We are now bracing for a 20% rise in volatility here on, from 12.3 last recorded on Friday.
(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are author’s own. Please consult your financial advisor before investing.)
