Technical View: Nifty Eyes 26,000 Milestone, Bank Nifty Crosses 54,000 for the First Time

On September 23, 2024, the Nifty 50 maintained its upward trajectory, moving closer to the key psychological barrier of 26,000. With this bullish momentum, the index is expected to breach the 26,000 level in upcoming sessions. However, experts emphasize that sustainability beyond this mark will be crucial for continued gains. On the downside, 25,800 is expected to serve as immediate support, while 25,500 will be a crucial level to watch.

Nifty 50 Performance: The Nifty 50 opened higher at 25,873 and remained in positive territory throughout the day. It touched a new intraday high of 25,956 before consolidating slightly and closing at 25,939, gaining 148 points. This marked a new record close for the index, which has been on a winning streak for three straight sessions. On the technical front, the index has formed a bullish candlestick pattern on the daily charts, bolstered by positive trends in momentum indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD).

Expert Analysis: Shrikant Chouhan, Head of Equity Research at Kotak Securities, pointed out that the daily charts show a bullish candlestick formation, indicating further upward movement. The index has been forming a "higher highs-higher lows" pattern, which reinforces its positive momentum. However, Chouhan warns that despite the bullish market sentiment, overbought conditions could lead to a period of rangebound activity in the short term. For day traders, the 25,850–25,800 zone will act as strong support, while the immediate resistance levels lie between 26,050 and 26,100. If Nifty fails to hold above 25,800, the uptrend could be at risk, prompting traders to exit long positions.

Options Data: Analysis of monthly options data reveals that the maximum Call open interest is at the 27,000 strike price, suggesting this could be a medium-term target for the Nifty 50. Other key levels include 26,000 and 26,500 strikes. The highest Call writing was observed at the 27,000 strike, followed by the 25,900 and 26,400 strikes, indicating that 26,000 is a critical resistance point. On the Put side, the 25,000 strike holds the maximum open interest, with 25,500 and 25,700 being other significant levels. Put writing was most active at the 25,900 and 25,800 strikes, further confirming that 26,000 is a key resistance level, while support is solid around 25,800.

Bank Nifty: The Bank Nifty index also continued its rally for the eighth consecutive session, crossing the 54,000 mark for the first time. It rose by 313 points to close at 54,106, forming a bullish candlestick pattern on the daily charts, supported by strong momentum indicators. According to Chandan Taparia, Senior Vice President and Analyst of Derivatives at Motilal Oswal Financial Services, the Bank Nifty needs to stay above the 53,750 zone to maintain its upward movement towards 54,500 and 55,000 levels. On the downside, support has shifted higher to 53,750, with additional support at 53,500.

Volatility and India VIX: Volatility saw a sharp increase, though it remained at relatively low levels below the 14 mark. The India VIX, often referred to as the "fear gauge," rose by 7.78% to 13.79 from 12.79 in the previous session. If the VIX climbs above the 15 mark and sustains, it could signal increased caution for bulls, as higher volatility could lead to more unpredictable market movements.

Outlook: While the overall market sentiment remains bullish, experts are keeping a close eye on key levels. Nifty is expected to test the 26,000 resistance soon, but sustainability beyond this point will be crucial. A correction could be on the cards if the index fails to hold above 25,800. Meanwhile, the Bank Nifty's strength signals continued upward momentum for banking stocks, with the index aiming for 54,500–55,000 levels in the near term.

In conclusion, while the market is in a bullish phase, short-term caution is advised as overbought conditions and rising volatility may lead to consolidation or minor corrections. Traders are encouraged to adopt a trailing stop-loss strategy to safeguard their gains, particularly if Nifty struggles to maintain its momentum beyond the 26,000 level.

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MCX Trading Resumes After Technical Glitch

On February 13, 2024, the Multi Commodity Exchange of India (MCX) faced a significant delay in trading due to a technical glitch. Initially scheduled to begin at 9 AM, the exchange was forced to revise its trading hours multiple times throughout the morning. First, the opening was postponed to 10 AM, then to 11 AM, and finally, trading commenced at 1 PM. This delay affected the commodity derivatives segment, leading to widespread disruptions.

According to a circular issued by MCX, the technical issues stemmed from its commodity derivatives trading platform. Both MCX's internal team and its technology partner, Tata Consultancy Services (TCS), were actively working to fix the problem. Zerodha and Upstox, two prominent brokerage firms, were among the first to report the delay via Twitter.

Despite the technical difficulties at MCX, the overall market showed resilience. By the time trading resumed at 1 PM, the Sensex had climbed 0.2% to reach 71,191 points, reflecting marginal gains in the equity markets. Brokers, however, expressed concerns about delays in receiving key files—such as position, margin, and trade files—from MCX, which affected the processing of trades from the previous session.

Shrey Jain, founder and CEO of SAS Online, stated, "Brokers are awaiting their position, margin, and trade files from the MCX. Without these, the processing of the previous trading session remains pending. Once the files are received, we will complete the beginning-of-day process and prepare the system for today's trading." This incident underscores the importance of technological reliability in modern financial markets, where even short-term glitches can have significant ripple effects. The incident has sparked a discussion on the robustness of India's trading platforms and their contingency plans in the event of technical failures.

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Markets Await Powell's Decision: Will He Follow Greenspan's Playbook to Avoid Recession?

With bonds and stocks rallying ahead of a crucial Federal Reserve meeting, traders are drawing parallels to the 1995 era when Alan Greenspan successfully navigated a soft landing for the U.S. economy. The focus now is on whether Fed Chair Jerome Powell will opt for a 25 or 50 basis point rate cut, and how it will impact the economy.

Historical data shows that during past Fed easing cycles, including the six analyzed since 1989, the S&P 500 Index, Treasuries, and gold typically rise when the Fed begins to lower rates. Traders are looking back at 1995 for guidance, a year when the Fed managed to reduce rates without triggering an economic downturn.

Kristina Hooper, Chief Global Market Strategist at Invesco, believes the U.S. economy is on track to dodge a recession with the Fed's anticipated policy shift. "Once the Fed starts cutting rates, there will be a positive psychological effect that will support the market," she said.

The S&P 500 Index has historically gained an average of 13% in the six months following the first rate cut, except during the recessionary years of 2001 and 2007. Additionally, short-term Treasuries have usually outperformed long-term notes during these cycles, leading to a steeper yield curve. Gold has also delivered returns in four of the past six easing cycles, while the performance of the dollar and oil has been mixed.

As the Fed prepares to implement rate cuts, uncertainty looms with the upcoming presidential election. Candidates have starkly different economic policies, which could significantly affect global markets based on election outcomes and Congressional votes.

Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International, has downgraded his rating of U.S. equities to neutral from overweight due to election risks. "The most likely scenario is a soft landing, but elections could introduce unique challenges," he noted.

In the 1995 easing cycle, Greenspan and the Fed managed to lower rates from 6% to 5.25% within six months, cooling the economy without causing a downturn. This time, with the Fed's target range at 5.25% to 5.5% for 14 months, bond traders are pricing in over 2 percentage points of easing over the next year. The S&P 500 is nearing an all-time high, and credit spreads are at historical lows.

Investor optimism for a soft landing is supported by strong corporate and household balance sheets, with record-high corporate profits and household wealth. "Inflation is no longer the primary concern; it's high interest rates," said Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management. "By cutting rates now, the Fed may address this issue and prevent a downturn."

Bloomberg strategists suggest that Treasury bonds typically rally at the onset of a Fed easing cycle, particularly when it coincides with a weakening economy. However, in a soft landing scenario, bond performance may lag behind stocks.

Recent data shows a rotation into utilities and real estate sectors, which historically benefit from rate cuts if economic growth remains robust.

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