Sell on rise: A short-term bull trap in the making on D-Street
The market is waiting for the festive season to gauge how consumer spends pan out
However, despite the government’s efforts to boost the economy, Mr Market seems rather unhappy and is unwilling to move significantly higher. There is a clear risk of ground-level weakness translating into weak corporate earnings growth, which is deterring Dalal Street from taking any aggressive bullish bet.
Actually, the market is waiting for the festive season to gauge how consumer spends pan out and whether there is a change in sentiment at the bottom of the pyramid. Until then the bourses are expected to remain largely sideways in a broad trading range.
The run rate in mutual fund SIPs seems to be intact, which has been a good helping hand in cushioning the market’s nerve-wracking fall. Moreover, the global scenario is turning favorable towards equity (risky assets), which is visible from gold’s 6 per cent correction from the top and the rupee’s appreciation from the highs of sub-Rs 73 to the dollar level.
The IT sector, in particular, has become vulnerable and is expected to start a larger downtrend given the high valuations.
Event of the Week
“Tata Motors’ global sales declined 32 per cent in August”, “Auto sales in India see worst ever fall in two decades” and “Cars getting expensive… unaffordable: Maruti Chairman.”
These are some of the headlines doing the rounds and despite the gloomy scenario in the industry, stock prices are not going down, which shows that this sector is deeply oversold. Traders should avoid auto stocks for now, but investors can get in when the numbers actually start showing improvement.
Nifty50 has jumped from its oversold levels near its key resistance in the 11,150 -11,200 zone, which now becomes a strong hurdle for the bulls to cross. The velocity of the rise is slightly slower than the rally seen in the previous months, which can cause concern in the short term but a decisive break above the 11,200 level will signal the resumption of a bull market rally. Sell on rise should be the strategy for traders with appropriate stop losses when Nifty reaches the resistance levels.
Expectations for the Week
Next week, the market is expected to witness some profit booking from current levels and any rise could be a bull trap as it is unlikely that the bourses will move substantially higher in the short term. Even though there has been buildup of incremental fresh long open interest, the velocity is still subdued in the stock movement, which means the bears are selling in the market at higher levels.
When the tide turns, the fall will be with a greater force. Financial services, private and public banks, infrastructure and commodities stocks should be avoided for longs for now as they may face selling pressure at higher levels. Nifty50 closed the week 1.18 per cent higher at 11,075.