Mkts need momentum to be sustained for further gains

Markets moved in all possible directions in the period May 13 to May 19. There was a trading holiday on Thursday the May 13 and therefore it was a four-day period. Friday saw markets move all over the place but finally close flat. Monday and Tuesday saw markets gaining very sharply on the back of markets being over sold and short sellers being forced to cover positions. Wednesday saw profit taking at higher levels and markets giving up gains ahead of weekly expiry on May 20.

BSE Sensex gained 1,211.84 points or 2.43 per cent to close at 49,902.64 points while Nifty gained 333.50 points or 2.22 per cent to close at 15,030.15 points. The interesting point to note is the high made in this rally matches the one made three weeks ago to the 'T'. The high made on April 29 was 50,375 points on the BSE Sensex against 50,313 points made yesterday. On Nifty it was 15,044.35 on April 29, while it was 15,043.70 points yesterday. Today markets saw a correction and lost over half a percent.

The significance of this high being similar to the previous one makes us believe that we have hit a resistance after two days of big gains. From here on, markets need to build fresh momentum or consolidate and then start gaining again.

The next levels are 51,821 on BSE Sensex and 15,336 points on Nifty, made on March 12. While these levels look quite near with a mere 1,900 points on BSE Sensex and 430 points on Nifty, they could take a long time in being breached. These levels become crucial for any upward rally on the benchmark indices. Similar levels on the downside would be the levels from where this rally began last week and then levels of 47,250 on BSE Sensex and 14,150 on Nifty.

Wave 2 of covid-19 seems to have peaked in India as a whole. The number of new cases or patients on a daily basis which was averaging around 4.25 lacs, has come down significantly to below 2.8 lac cases. This is a positive sign. Lockdown has been imposed in states of West Bengal and Tamil Nadu and extended in some more like Maharashtra and Karnataka. While these steps are helping in controlling the spread of covid-19, the impact on livelihood of the lowest level of the pyramid is a cause of concern.

Results season continues and results by and large reflect growth and cost cutting as hallmarks for FY2020-2021. This gives a foundation for the coming year and a strong belief that once covid-19 is controlled, the economy would fire on all cylinders.

Coming to the markets in the period from May 20 to 26, they would continue to remain volatile. One must also keep in mind that May futures would expire on Thursday the 27which is the next day after the period under review. Having tested the upper levels of the broad band in which markets are trading we have a possibility that the momentum may make markets break out and take us to the higher level mentioned. If this has to happen, we must trade around current levels and not slip or lose ground. The second possibility is that we correct from these levels and then make another rally with force to take us past the hurdle.

In either of the above cases, it makes sense to continue to trade the markets by selling into strong rallies and buying on sharp dips. Trading opportunities would be available and help to make the best of volatility.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)