Target of 5800 is just fine

Things do come in bundles most of the times. Until the other day, we were dealing with concerns like inflation, global slowdown, lack of reforms, fiscal deficit, so on. And look, we now have good things coming in bundles too: The European Central Bank and US Federal Reserve announcements, imminent liquidity boost due to those announcements, India’s diesel price hike targeting fiscal deficit, the government’s foreign direct investment announcements.

All this led markets to breach the resistance level of 5450 in a gap-up opening last Friday. Well, that was more or less in line with what we were talking about since the beginning of the September series. What’s next in store? 

Though it may sound repetitive, it is worth underlining that liquidity still remains strong and foreign institutional investors’ continue to buy emerging market equities. Last Friday, they bought significantly in the cash market segment with formation of long positions in index futures. They were buyers of options too.

So there is no change of thought in their camp despite the market crossing the resistance meaningfully. This has to change at some point in time, but that time is not right now.

Many would claim that they did anticipate such a move in markets. But, honestly, they didn’t and even if they did, they didn’t participate. We are highlighting this point because there is a strong feeling of being left out. Today, you have a consensus almost that this market now has strong upside momentum.

However, we have our reasons for not following our philosophy that consensus doesn’t work. So, though there is consensus, participants are still waiting for dips to buy; and our assessment is that this dip may not come and we may head towards the 5700-5800 zone where some resistance may appear.

If there is a dip in the market which everybody is pleading for to get in, then it won’t be a dip but a decent correction. Well, this is not our call as we don’t see any dip but a ‘pain rally’ wherein participants who were on the sidelines come to buy, causing further upside. We are yet to see this happening. Historically, during such pain rallies,  we have not seen any meaningful dips.

Last week, we mentioned about the 5700 call getting active and now we see the same happening with the 5800 strike call. Don’t expect big corrections as there are now participants at every dips waiting to buy. Time for buying on dips is gone. Hold on to your long positions for some more time. Though we are bullish, we aren’t having astronomical targets in mind; 5750-5800 in this series should be just fine.

The writer is head - equity derivatives, Angel Broking