We’ve been writing about how the momentum is to the upside for the last few weeks, but now prices are testing overhead supply across all the major Nifty indices.
If you haven’t read our last few posts we’d highly encourage it, as they outlined our shorter-term views within the context of the long-term trends.
If you’re all caught up, then let’s take a look at the levels we’re watching in the Nifty 50 and other indices.
Here’s the Nifty 50 running into overhead supply near 10,000. Momentum failed to reach overbought territory despite the more than 35% rally since the index’s March lows.
Click on chart to enlarge view.
Given the strong momentum of the last two weeks in India, and globally, we don’t want to be blindly shorting this first push into resistance. Remember, it’s only “potential” resistance until the market proves that it’s relevant. And on top of that, the weight of the evidence continues to point in the direction of erring on the long side of equities as an asset class.
As prices test this overhead supply, here are some questions we are asking.
- How do prices react to this overhead supply?
- Do they break above it and then consolidate above it?
- Do they correct through time and then break out?
- Do they correct through price and if so how far do they correct?
- What sectors are leading and which are lagging?
- Is the action in the other three asset classes confirming what we’re seeing in equities?
- How does the action in India differ from what we’re seeing globally?