Trading strategies

Pre-market stock update on Thursday, May 16:With an emphasis on FII inflows after US rates dropped to 5-week lows, equity markets in India are anticipated to follow strong foreign signals and trade on a positive note today.
Gift Nifty futures opened at 22,380 at 7:00 AM, indicating a probable 70-point gap-up on the Nifty 50 index.

Global Markets

The US market closed at all-time highs overnight as statistics revealed that US consumer prices increased less than anticipated in April, indicating that inflation has started to decline in the second quarter. According to the data, there could be many interest rate reductions in 2024.
In April, the US consumer price index (CPI) increased by 0.3%, less than the 0.4% increase that was anticipated. The figure indicates a slowdown in domestic demand, which US central bank officials are probably happy to hear as they work to facilitate a “soft-landing” for the economy.

Following which, all three indices closed at new life-time highs. Dow Jones jumped 0.9 per cent. The S&P 500 rose 1.2 per cent, and Nasdaq soared 1.4 per cent.

The US 10-year bond yield eased to 4.32 per cent, its lowest level in the last five weeks. Among commodities, Gold futures jumped back to $2,400 levels, while Brent Crude Oil hovered around $83 per barrel.

Mirroring the cues from the US peers, the Australian and Malaysian stock benchmark indices surged over 1 per cent each this morning. Taiwan too was up 0.8 per cent. Japan’s Nikkei held a 0.6 per cent gain even as data showed that its economy shrank more than expected in Q12024 hit by slowdown in consumer spending and sticky inflation.

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Domestic Cues

Thursday’s FII flows will be closely watched after a decline in US yields. In the derivatives market, the FIIs are said to have built big short positions and have been active sellers thus far in May. On Wednesday, the DIIs net bought shares worth Rs 3,788 crore, while the FIIs net sold equities worth Rs 2,833 crore.

The Foreign Portfolio Investors (FPIs) continued to aggressively build short positions in Index futures. The long short ratio on 14th May stood at 30.46 per cent, said Ashwin Ramani, Derivatives & Technical Analyst of SAMCO Securities in a note.

Foreign investors are the most pessimistic in over a decade on Indian stocks amid speculation over Prime Minister Narendra Modi’s party winning fewer seats in the ongoing national elections than previously estimated.

Net short positions – measured as the difference between the number of index futures contracts on which global funds are long to those on which they hold a short position – surged to 213,224 contracts, data compiled by Bloomberg showed. The gap is the widest since data going back to 2012. Among individual stocks, shares of oil & gas producers & explorers will be in focus on Thursday after the government, in its bi-weekly review, cut the windfall tax on petroleum crude to Rs 5,700 per metric tonne from Rs 8,400. The tax remained unchanged at zero for diesel and aviation turbine fuel.

That apart, shares of Biocon, Container Corporation of India, Crompton Greaves Consumer Electricals, DCW, eClerx Services, Endurance Technologies, Gail India, Hindustan Aeronautics (HAL), Vodafone Idea, Indian Hume Pipe, Indoco Remedies, JK Paper, Krishna Institute of Medical Sciences (KIMS), Kopran, Mahindra & Mahindra (M&M), Info Edge (Naukri), Prism Johnson, Sanghvi Movers, Solar Industries, Texmaco Rail, V-Guard and Wonderala Holidays are likely to be on investors radar ahead of Q4 results today.

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Trading strategy for Thursday, May 16 – Should you be a buyer or seller today? Here’s what market experts recommend:

Ashwin Ramani of SAMCO Securities states that the support level of 22,200 which earlier acted as a strong support for Nifty, is acting as resistance now. The Nifty has failed to aggressively close above the channel support level convincingly in the last two trading sessions. The call writers (Bears) have sizeable positions at the 22,200 Strike and the option activity at this strike will provide cues about Nifty’s Intraday direction ahead of the weekly expiry today.

Om Mehra, Technical Analyst of SAMCO Securities cautions, that the Nifty is forming an inverted head and shoulder pattern on the hourly chart, with the neckline remaining around 22,320; if crossed, expect a potential rally towards the 22,450-22,500 range.

On the downside, immediate support for the Nifty is seen at the 22,080 level. The Relative Strength Index (RSI) continues to hover below the 50 mark, signalling short-term weakness in the market, the analyst added.

Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates also highlights that technically, on the daily scale, the Nifty has encountered resistance near the 22,300 levels, where the 21-Days exponential moving average (21-DEMA) is placed. As long as the Nifty remains below the 22,300 levels, we expect the index to consolidate in the range of 22,000-22,300. 

Despite the fall on Wednesday, the Bank Nifty is still respecting a bullish engulfing candle, indicating strength. As long as the Bank Nifty remains above 46,983, the bullish momentum will continue. On the upside, the 21-DEMA is placed near 48,060, which will serve as the first hurdle for the index, followed by 48,500, Hrishikesh said in his note.

Sentiment remains subdued as long as it stays below 22,250. A decisive move beyond this level could potentially propel Gift Nifty towards 22,600 and beyond. Conversely, a failure to sustain above 22,200 might invite selling pressure in the market, said Rupak De, Senior Technical Analyst at LKP Securities.