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Solid growth and global economic expansion are helping to buoy the Nifty 50.
According to the
NCAER, the Indian economic is forecast to increase by 6.7%
during the current financial year and increase by 7.5% during the 2019 financial
year. These figures were in line with estimates.
Nifty Hits 10,600 but Fails to Recapture Resistance
The Nifty 50 index
trading was able to test the 10,600-mark but was unable to close above
resistance near the 50-day moving average at 10,623. Prices have attempted to
recapture this level 3-times since tumbling through support in the wake of the
February capital markets meltdown. Prices will need to eclipse this level
otherwise they could test the February lows at 10,300 and a break of this level
would lead to a test of the 200-day moving average near 10,109. While the index
is slightly higher on the year, the quick plunge has awakened investors to the
risks of investing in stock indices.
On a positive note it appears that momentum is poised to turn positive. The MACD
(moving average convergence divergence) index is about to generate a crossover
buy signal. This occurs as the MACD line (the 12-day exponential moving average
minus the 26-day exponential moving average) crosses above the MACD signal line
(9-day exponential moving average of the MACD line). Additionally, it also
appears that the MACD histogram is poised to crossover the center line which is
also a buy signal.
Bank Shares Weigh on Broader Markets
One of the reasons the Nifty is having a difficult time generating upward
momentum is the decline in the relative value of banks that are in the Nifty 50.
The nifty bank performance relative to the broader index has been on the decline
since reaching a peak in November. The ratio, (Nifty Banks / Nifty 50) continues
to trade under pressure and is poised to test support levels near 2.41. A break
of this level would lead to a test of the October lows at 2.37. Since the
financial sector is one of the driving forces behind the performance of the
Indian economy, these decline in this ratio is an ominous sign for the index.
The ratio has also generated a “Death Cross”. This occurs when the 50-day moving
average of the ratio crosses below the 200-day moving average of the ratio. The
last time this occurred was in September 2015, and subsequently the ratio
dropped 11% which coincided with an 18% drop in the broader index.
Trader’s await the aftermath of the first congressional testimony from new Fed
Chair Gerome Powell. Power is considered a moderate and will likely stay the
course and not rock the boat. His prepared testimony showed that he plans to
continue to normalize rates. The question is whether Powell believes the U.S.
economy is overheating which could be the catalyst that sends equity prices into
a tailspin. Currently the market is pricing in 2-3 rate increases by the Federal
Reserve over the next 12-months.
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