Gold prices rallied strongly in the last week as the dollar spiralled lower in hopes of more Coronavirus relief aid, the US Federal Reserve’s pledge to funnel more cash into the economy and keep interest rates low. Therefore, ICICI Securities believes gold prices will remain positive towards Rs 51000 level in the short term.
Despite the weakening dollar, the US$INR remained close to its highest Put base of 73.50. ICICI Securities believes these levels will be tough for the pair to breach on downsides and buying can be seen from here. The dollar-rupee December contract on the NSE was at 73.61 in the last session. The open interest increased sharply by another 7.8% in the December series contract.
Equity benchmarks extended their record setting spree and scaled a fresh all-time high of 13773 amid firm global cues. The Nifty ended the week at 13761, up 1.8%. Broader markets performed in tandem with the benchmark as Nifty midcap, small cap gained around 1.5%, 2%, respectively. Sectorally, pharma, NBFC, IT, realty outshone while FMCG, auto took a breather during the week.
Risk on sentiment prevailed across global equities as dollar weakness extended. The weekly price action formed a sizable bull candle with a small lower shadow carrying higher high-low over seventh consecutive week, indicating continuance of positive bias as Nifty formed a higher base and eventually resolved above the hurdle of 13600.
The aforementioned constructive view is further corroborated by following observations/ monitorables:
a) The Dollar index has breached the key support threshold of 90 for the first time since April 2018, auguring well for emerging markets. We believe continued weakness in dollar index will remain the key monitorable for extension of ongoing rally as that would provide impetus for the Nifty to resolve higher and head towards 14200 in coming weeks
b) Market breadth has subsequently improved as currently all Nifty components are trading above their long term 200 days SMA
c) The gyrating sectoral traction signifies the leadership is broadening, augurs well for longevity of trend.
Over the past seven weeks, the index witnessed a sharp rally of 2240 points, which hauled daily and weekly stochastic oscillator in overbought territory at 92 and 97, respectively. Hence, ICICI Securities believes subsequent rally from here on would be in zig-zag formation wherein intermittent episodes of profit booking at higher levels cannot be ruled out. However, such a breather should be used as an incremental buying opportunity.
Broader markets maintained their winning streak over seven consecutive weeks, which has been backed by sturdy market breadth. Currently, 97% components of midcap and small cap indices are trading above their 200 days SMA compared to November reading of 90.