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Small-Cap Indices Break Out As Nifty Continues To Be Range-Bound

It's a good time as ever to add them to your portfolio, after a thorough suitability assessment based on your risk tolerance, of course.

Photo Credit : PTI

1500440514_N1IRnk_BSE-Sensex-PTI.jpg

After enjoying a mostly bullish week, the NIFTY felt the heat on Friday, falling 0.45 per cent. The selloff was triggered by the U.S killing of a top Iranian commander in a drone strike, an act that sent oil prices shooting up 4 per cent and triggered shock waves across global markets. Brent hit nearly 70 USD/ bbl and the rupee plunged 0.42 per cent as a result, closing at a 6-week low against the US dollar. FPIs booked profits in the first three trading sessions of 2020, pulling out in excess of Rs 2400 Crores on a net basis.

On the technical front, it's worth noting that we’ve witnessed an extended stay in the overbought momentum zone on the weekly charts. In a situation like this, a retracement - be it time, price, or both - becomes almost inevitable. However, the upward sloping middle Bollinger band indicates that this retracement isn't likely to be an aggressive selloff, but rather could be a more meandering pause with a drop of a couple of hundred points in the index. The broader trend most certainly remains bullish.

More notably, we had the most interesting post- squeeze breakout in all major small-cap indices last week. Another technical indicator, the small-cap to SENSEX ratio, hit a level known informally as the "rebound line". The writing is on the wall - the beleaguered small caps that went into their shell after their spectacular performance in '17, are all set for a very healthy rally going forward. It's a good time as ever to add them to your portfolio, after a thorough suitability assessment based on your risk tolerance, of course.

DISCLAIMER: Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. If you do not fully understand these risks you must seek independent advice from your financial advisor. All trading strategies are used at your own risk.


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