Last week, it was indicated that 24415 would act as the first resistance level on the upside for Nifty, and if the 24278 support was broken, the downside supports of 24024 and 23823 would become crucial. Last week, not only was the higher resistance zone never tested, but the 24278 level was lost in the initial days itself. The index dropped to 24025 (just above 24024) before ending the week’s trade at 24252. Global macro data and commodities are currently flashing very strong warning signals for the market. The surge in US bond yields and crude oil is creating structural pressure across global markets. The US 10-year bond yield stands at 4.74% and the 30-year bond yield at 5.28%. We had shared concerns regarding rising bond yields last month as well. However, the fact that yields continue to surge upwards despite the US Treasury implementing a new bond buyback program last week is a matter of severe concern. Bond yields remaining at such elevated levels poses a major threat to the global equity market. Higher capital costs will impact corporate margins and drag down equity valuations. In short, Trump now needs to shift focus from the Iran conflict to the domestic bond market and take necessary measures on a war footing.
Brent crude closed last week at 93.87. Its sustenance above the 91.15 level is a major negative for the market. If this trend continues, the possibility of a new rally towards the 107 – 112 – 115.93 levels will open up again. To avoid this, the current support area of 91.15 – 90.43 must be broken on the downside at the very least. The Dollar Index is currently at 98.67. Unable to close above the 101.43 resistance line, the Dollar Index has drifted lower in recent weeks and broke down past the crucial 99.36 support area last week. The index is now heading towards its next support target of 97.18. A weakening dollar provides the only point of relief for the global market.
A very clear sector rotation is taking place in the market. While some sectors are putting up a strong performance, others are showing signs of weakness. Sectors like Pharma, Realty, Auto, Media, and Banking (Private) currently continue to lead the market from the front. In addition to this, Nifty 500 companies and small-cap stocks are trading with sustained strength, indicating broad investor interest in the market. The Consumption, Financial Services, Services, and IT sectors are seeing positive improvements in their trends. These could provide support to the market in the coming days. Sectors that continue to lose momentum include MNCs, Metals, Energy, Commodities, PSU stocks, and FMCG. Higher crude prices and macro data are heavily weighing down on these sectors.
Looking at Nifty, the first hurdle is to close above the resistance line of 24277, which is just above last week’s close of 24252. If this is achieved, the next levels to watch out for are 24430, 24677, and 24772. Only above these levels will the bulls gain the strength required for a solid rally. Now, let’s examine the downside supports to monitor in the coming days. The first support to watch is 24192. Below this, the 24031 level is equally important. Losing this level as well will lead Nifty to test the strength of its underlying supports at 23954, 23843, and 23783