Market recovery faces holiday hurdles- Subdued volumes and mixed signals suggest caution ahead

By Anand James

A holiday marred week stands in the way of recovery attempts from the verge of what still appears to have a reasonable chance of evolving into a substantial fall. While March derivatives expiry as well as Fed speeches provide an ideal foil for such an outcome.  

It must be noted that on all days last week, volumes were significantly below the month’s average. Favoured view expects this trend of subdued volumes to persist unless a range breakout beyond 22500-21700 unfolds.

That said, we have just seen a couple of days’ close above the 50d SMA, as well as a bounce off the 68% fibo of the year’s high-low indicating that buying interest is bubbling, waiting for further cues to gain momentum. 

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But, we are not keen on chasing prices higher, as directional moves are less expected to evolve, and towards this end, we would be entering the week with a limited upside objective of 22400-500. Downside markers may be placed near 21920, until above which, a buy-on-dips approach could be taken early in the week, while a direct fall below 21810 region could force us to reconsider 21400-20900 as downside objectives.

Meanwhile, small cap index’ MACD is about to cross above signal line from below, indicating that the exodus from smaller caps may be over. We will be following the evolution of this indicator with intent, with hopes of maturity of the same. Towards this end, small caps could lead in the case of extension in recovery attempts and could outperform the large caps.  

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With Bank Nifty, our last week’s downside objective of 45900 having been fully met, followed by two days of up close, we are not keen on committing on a directional play. Having stalled at the 20d SMA, a sideways move is likely in the coming week, with downside marker positioned in the 46400-45900 vicinity, while upsides look less likely to stretch much beyond 48000.

(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are author’s own. Please consult your financial advisor before investing.)

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