Stock Watch: Will the bullish market trend last?
By Amit Sinha*Weekly Analysis, Insights and Forecast
26 June, 2023 – 30 June, 2023
The Bullish market trend right now is making the Mid and Small caps buoyant and cheerful as the emerging growth story in Indian Stock Market. While many are strongly bullish more on these indices and related stocks, their next quarterly growth performance is the key factor in determining the trajectory ahead. However, few stocks such as Suzlon, Delta Corp, Thyrocare, and Octra Greentech etc. have shown great potential as top gainers.
Billionaire American investor Charlie Munger once said, “Bull Markets go to people’s heads. If you are a duck on a pond, and it’s rising due to a downpour, you start going up in the world. But you think it’s you and not the pond.” This is somewhat similar to what is happening with Mid and Small cap Indices.
MIDCAP (BSE) graph depicted on a daily time frame below
SMALLCAP (BSE) graph depicted on a daily time frame below:
As far as Indian Indices are concerned, Sensex after hitting a life time high of 63,601 on Wednesday, 21st June cooled down to 62,979 by Friday 23rd June closing session. While Nifty50 on the other front just shied away by 1 point off from its life time high of 18,867.60 intraday on June 22, 2023. So nigh on, we have reached the Life Time High on Nifty 50 as well. As per analysis put forth in the last week column, we are likely to see profit booking sessions at these high levels and a retracement is on the cards as we see a negative and bearish RSI (Relative Strength Index) divergence technically on charts. The RSI oscillates between 0 and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. RSI is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions. RSI indicator on 16th June was at its highest at about 66.30 levels.
Nifty50 has started its downward trajectory after forming a “DOUBLE-TOP” pattern. Its next major support level is at 18,500 levels and if it’s breached it can move down towards 18,200 and 18,050 level quickly in next one or two weeks trading session.
Nifty50 graph depicted on a daily time frame below
Next Week Outlook
As also mentioned in last week analysis, this rejection from high time in Nifty50 may however be a temporary unwinding and consolidation towards 18,500-18,050 levels before we go on to levels of 19,000-19,300 towards end of July 2023. Overall the trend in larger time frame is upward owing to positive and bullish sentiments in Indian Market. The negative cues are mainly coming in from other global peers in US and Europe which are having nightmares fighting inflation and geo-political conditions. With positive quarterly earnings report coming in in July, market expects the indices to go up considerably.
Next Week will be the last trading week of the June month and it will also be truncated as 28th is a non-trading day being holiday for Id-ul-adha (Bakri Id).
The overall market sentiment in near time is favouring Bears now with a strong pessimistic tone. The market breadth last week had tilted as the advance-decline ratio was at 1:2. The VIX (Volatility Index) also declined by 2.70%, reaching a level of 11.24. The broader markets consisting of Nifty mid and small-cap indices not so surprisingly declined by 1.24% and 1.17% respectively.
Accenture, the major tech company has raised severe concerns on expected dismal earnings of Indian IT Sector and downgraded the sector resulting in pressure on Indian IT stocks.
During this lean period expected further till July 2023, the investors can look at hiding their capital in less volatile sectors and PHARMA sector is one which is showing resilience during this downturn.
Other sectors like Banks, Metals, FMCG, Infrastructure and Cement are all looking to be sideways or negative in coming weeks.
Looking ahead, Indian market will watch out for news on global cues – interest rate, economic indicators. Nifty50 performance with its support at 18,500 and resistance level at 18,900 will be key to watch out for and the play arena for traders and investors.
Global Clues
USA: Throughout the end part of last week, the US Indices kept on falling. This was due to after effect of the testimony of Federal Reserve Chair Jerome Powell on Wednesday the 21st. The key takeaways from the testimony was that it was hawkish (and a little more hawkish) as it strongly suggested more rates hikes unless the 2% inflation target of central bank is achieved. This undoubtedly has led the 74% of the market to expect another rate hike of 25 basis points as early as in July i.e. next month and another rate hike in before end of the calendar year, it could be as early as in September month. While he also stressed that the central bank will proceed with a caution and analyze the economic data with its merit, implications for outlook and balance of risks before taking a call on increasing the rates. Still, all the three U.S market indexes went into a sell-off mode and closed losing ground from a week’s long rally. Dow was down by 0.54%, S&P by 0.60% and Nasdaq by 0.73% at the end of trading session on last Friday.
Majorly, effect was seen on NASDAQ Index which has major components of mega-cap I.T and tech related stocks with high interest sensitiveness, snapping its 8 week rally which was longest since March 2019.
On Wednesday, the US Dollar came under strong selling pressure during the American trading hours. The US Dollar Index (DXY) snapped a three-day winning streak and erased its weekly gains.
U.S Dollar Index graph on a daily time frame is depicted below.
Bank of England (BOE): On 22nd June 2023 BOE surprisingly decided to raise the interest rates by 50 basis points aiming to tackle persistent inflation. The Consumer Prices Index (CPI) rose by 8.7% in the 12 months to May 2023. It’s indeed a tight rope walk for the policy makers to quell down on inflationary pressure without triggering a full scale recession. Economists are upping their expectations for another rate hike for monetary tightening in near future.
Another major concern in Europe right now is rising Gas prices. The natural gas prices have risen by 50% in June month itself. The supply-demand is adequately mismatched and as Netherlands is relentlessly winding down its production, the gas crisis is still not foreseeing an “out of the woods” situation in near term.
Turkey: The newly appointed Central Bank Chief this month, Hafize Gaye Erkan decided to hike interest rate from8.5% to 15%. Her decision marks the first rise in June 2023 interest rates since December 2020, is a major shift in policy to tackle rampant inflation prevailing at 40% as it continues to grip the Turks in a cost-of-living crisis.
China: China’s plan of recovering its economy is spluttering and this is despite 2 more recent cuts in lending rates. As there are more likely headwinds ahead with slew of macroeconomic issues, their GDP forecast also stand reduced from 6.5% to 5.4% for this year. The weakened sentiment shrouds the pace for any faster recovery even if there are few more stimuli. The challenges from the property market, pervasive pessimism among consumers and private entrepreneurs are failing to offset any negative sentiments. While the US fed proposes to increase more rates, the Chinese Yuan is expected to go weaker against the U.S Dollar. Investors are hoping that the Chinese markets will hop in the second half of the “Chinese Rabbit” year.
Russia: As global economic front is reeling under inflationary pressures, the mutiny in Russia has added more woes to the global worries. As per latest news coming in, a compromise deal is done yesterday between Belarusian leader Alexander Lukashenko (who launched an alleged coup in Russia) and situation is coming back to normal in Russia. If the situation had gone out of hand, we could have witnessed more oil crisis and India would have suffered low cost import benefit which India is enjoying since 8-10 months.
Disclaimer: The opinions expressed within the content are solely the author’s (not a SEBI registered advisor) and do not reflect the opinions and beliefs of the website or its affiliates. You should consult a qualified broker or an independent financial advisor before making any investment.
*The writer is a long-term investor/trader. The views expressed are personal.
