By Anand James
The US dollar is at its strongest against the rupee, but despite the strong move on Friday, the dollar index is yet to breach the May peak and in a way suggest that recent news flow is only confirming what it had priced in a month back. Now, the rupee is a very good proxy to the NSE Nifty 50 index, when it comes to directional moves in the equity market. While red hot inflation and recession prospects dominate US market readings, India has had a few positive news flow after Friday’s close by way of April IIP, which rose to 8 month high, and unemployment rate dropping for second consecutive month in May according to CMIE.
Meanwhile, India VIX, though near 20, has been on decline from May’s peak of 25.6. Infact, VIX at 20 is now not a rarity at all, having pushed above the same, from below, at least 6 times since September 2021, suggesting that traders have systematically got acclimatised to a higher volatility environment. Also, when put in perspective, current VIX levels suggest traders are unlikely to be as much surprised as in 2020, where VIX started rising from a benign sub 15 levels in January, before peaking to 83.6 in March, courtesy Covid.
With these in perspective let us look at how the NSE Nifty 50 index is poised. We are now 13% below the record peak of 18604 and have since had brief forays below 16000 twice. On the first occasion, which was in March, the recovery was not only quick, but it was also steep, rewarding the bulls with a 15% return. The second occasion, which is unfolding now, has not been benevolent to the bulls, as bears never left the ring, keeping advances in check almost always. The end result has been triangular and wedge patterns which reflect reasonably long periods of consolidation, but also point to potentially strong directional moves. While the undertone for Monday is clearly negative, a close above 16160 could help us keep faith with the bulls. Inability to do so could resign the trend to a sideways band with downside bias. We are not yet convinced of a cascading fall. At least not yet.
(Anand James, Chief Market Strategist, Geojit Financial Services. Views expressed are the author’s own.)