Nifty - Looking for Direction; Election Results; RBI Policy; GST Data; PMI Data & India VIX will play a big role;

While a comfortable majority for the incumbent government could lead to some short-covering led rally, we believe the upside might be capped. While there are prospects of short-covering if there is no negative surprise in election results, profit-taking is also a possibility because retail investors are positioned on the higher side

Post Market Weekly Analysis

The Nifty 50 weekly Index opened at 23038.95 touched the high level of 23110.80 and slipped down to 22417 before closing at 22530.70. So the benchmark index oscillated in a range of 693.80 points over the previous week's trading sessions, finally closing on a loss of 426.40 points, i.e. in percentage term (-1.86%) on a week-on-week basis.

Nifty 50 Index Monthly Chart

The monthly closing with an indecisive candle shows that market participants are confused, about how much the highest point they can be seen on benchmark indices in the coming week.

The reason is simple. The major event will be finished and India VIX should be about to go down after June 4th, in these cases, both factors will suggest the market book profit on every short covering rally, which makes the market go either down or stand still with consolidation in the wider range only.

Nifty 50 Index Weekly Chart

The profit booking on last week's trading sessions shows that market participants were not ready to take overnight positions for event risk.

The weekly chart is taking support on 9-Week SMA, which shows that if it breaks 22400 then easily, it can go down up to 21800 marks immediately. But if breakout happens, above the 23110 level, then we can see, the upside up to the 23400 level.

Nifty 50 Index Daily Chart

The daily chart is taking support from the 20-day SMA, which shows that the bearish side has stopped for a while, and market participants will wait to take the position.

On Monday we can see a bullish start, but according to market data, it is capped till 23400 level, but due for short covering for sure.

Nifty 50 Weekly Fibonacci Chart Status

The level is still intact after a new lifetime high on the Nifty 50 Index. The levels for this week could be between 0 and 1.414. The new lifetime is on the card in the coming week.

Nifty 50 Index Weekly Chart -with Technical Indicators

RSI Indicator Pattern

The weekly RSI is 59.83; it shows no divergence against the price. The RIS seems bearish for the coming week.

Money Flow Indicator

This weekly indicator is at 58.82 which suggests bearish signals.

MACD Indicator Pattern with Bollinger Band

The weekly MACD is bearish and trades below its signal line.

FII's & DIIs Cash Weekly/Monthly Activities

FIIs have net sold Rs 42,214 crore in the cash segment in May, the highest monthly selling since June 2022, due to their buying in Chinese stocks, and spike in US bond yields (trading at 4.5 percent). However, domestic institutional investors fully compensated for the FII outflow by buying Rs 55,733 crore worth shares during the same month, which in fact, has been acting as a major supporting factor for the market.

Foreign institutional investor's activity will also be a key factor to watch going ahead. We can expect the FIIs to come back, after their significant outflow in the past couple of months, citing the likely political stability, strong economic growth, and manageable inflation in India, although US interest rates.

Outlook for the NIFTY 50 Index for the Coming Week

The FPIs’ net position in index futures at the start of the June monthly series is nearly (-) 297,800, indicating utmost caution ahead of the counting of votes on Tuesday. FPIs have been net sellers in India since April due to expensive valuations and uncertainty amid the General Elections. At the same time, retail and HNIs have net positions of over 296,000 in index futures, which is the highest ever on record. This mixed set of data indicates a volatile trend for the market next week.

India VIX:

The volatility remained elevated and hit a fresh two-year high on Friday. However, now with the exit polls outcome and post-election results (on June 4), it is likely to come down in the coming sessions as generally it always spikes during such mega events.

India VIX, the fear gauge, jumped 13.3 percent during the week to 24.6, the highest closing level since May 2022, continuing its upward journey for the fifth consecutive week.

Support Level for the Coming Week for NIFTY:

The broader support level on the technical chart could be 22400, followed by 22000 and 21700 levels.

Resistance Level for the Coming Week for NIFTY:

The broader resistance level on the technical chart could be the level of 23300, followed by 23550 levels.

Important Upcoming Monthly/Weekly Activities

Lok Sabha Election Results

After strong exit polls, all eyes will be on the actual election results due on June 4. Market participants hope for similar kind of results on the same day and are confident about policy continuation. And after June 4, the market will start focussing on the government's roadmap for the next five years.

The survey of people, who exited polling stations after voting, conducted by several agencies indicated that the BJP-led NDA is likely to get more than 350 seats in the Lok Sabha election 2024 and few agencies pointed out even more than 400 seats for the NDA, with Narendra Modi becoming the Prime Minister for third time.

RBI Policy

The next domestic event to watch out for would be the outcome of three-day Monetary Policy Committee (MPC) meeting, due on June 7. Most experts expect the policy rates to remain unchanged and the focus will be mainly on the RBI governor's commentary. According to them, the rate cut may not happen before Q4-2024 given the central bank's inflation trajectory and persistent upside surprises in growth.

Q4FY24 GDP print at 7.8 percent (against estimates of 7 percent) suggests growth is moving faster than expected by the RBI, which means the central bank should see little urgency to cut rates while the MPC awaits comfort on headline inflation. In our view, the MPC will likely vote 5-1 to keep the policy mix unchanged at its meeting on June 7.

Domestic Economic Data

Further, the street will also look for cues from the PMI numbers due next week. The HSBC Manufacturing and Services PMI numbers for May will be released on June 3 and June 5, respectively. Most experts expect both to be higher than the previous numbers of 58.8 and 60.8 (respectively) recorded in April. Apart from that, foreign exchange reserves for the week ended May 31 will also be released in the coming week on June 7.

Global Econonomic Data

Globally, the major focus of the market participants next week will be seen on the unemployment rate, non-farm payrolls, JOLTs job openings & quits, and Challenger job cuts from the United States. These data points are crucial especially ahead of the FOMC meeting scheduled in the following week on June 12.

In addition, the manufacturing and services PMI numbers by several countries including the US, China, Japan, and Euro Area, due on June 3 and June 5 respectively, will also be closely watched.

Technical Analysis

Technically, the market seems to be poised for a further upward journey in the coming week, considering the Nifty 50 holding the mid of the Bollinger band (or 20-day SMA) as well as defending 50 percent Fibonacci retracement level (from the low of 21,821 to record high of 23,111, in May) for another session on Friday, especially ahead of exit polls which now are likely to strengthen the chart structure.

We can expect the market to open gap-up on Monday and record a high journey for the market may continue. It will show the continuation of higher highs and higher lows on the longer timeframes.

In the above case, the Nifty 50 is likely to climb above the upper end of Rising Channel (placed at 23,150-23,200 area) in the coming week, with crucial support at 22,300.

Reading Current Option Data

The weekly options data indicated that the Nifty 50 is likely to face initial resistance at 23,000 and then 23,500, while 22,500 now is likely to be the key support area.

On the Call side, ahead of exit polls, the maximum open interest was seen at 23,000 strike, followed by the 24,000 and 23,500 strikes, with maximum writing at the 23,500 strike, then the 23,000 and 24,000 strikes.

On the Put side, the maximum open interest was observed at the 22,000 strike, followed by the 22,500 strike, with the maximum writing at the 21,500 strike, followed by the 22,600 and 22,500 strikes.

Participant Wise Final F&O Weekly Summary

FII's, PRO, and Clients F&O Summary by Segment

1). FII's positions as of the last trading day:

2). PRO's position as of the last trading day:

3). CLIENT's position as of the last trading day:

Summary - Overall

FPI activity in June will be crucially influenced by the election results to be announced on June 4th and the market response to that.

If the election results ensure political stability the market is likely to respond positively to that. FPIs also are likely to turn buyers in such a scenario. However, in the medium term, US interest rates will exert more influence on FPI flows

Along with exit polls, the market will also react to domestic GDP data along with US core PCE data which will further heighten the volatility on Monday.

Overall the global cues have been weak as the hopes of a rate cut are getting diminished with better-than-expected US economic data releases. 

Technically markets would trade highly volatile with a high VIX index, holding markets above 22400 levels would keep us in a positive zone with a possible upside towards 22800-23000 levels in the coming days. Close above 23111 would be highly watched.

While enforcing strict protective stops and opting for hedges wherever possible, a very cautious approach is advised in the coming week.

Thanks for reading.

Keep Trading

Stay Invested

Regards,

Neeraj Bhatia

(Managing Director)    

https://www.crbpvl.com/

Disclaimer: I am a National Stock Exchange-certified Technical Analyst and Chartist but not a SEBI-registered analyst, so consult your financial advisor before taking any trade. This technical weekly post-market journal is only for learning purposes and it is downloadable free of cost. The views written here are entirely only my personal views. I am not forcing anyone to follow my thoughts. I do not have any WhatsApp Group ID or Telegram ID related to it.