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Indian markets could open higher, in line with largely positive Asian markets today and higher US markets on Tuesday- HDFC Securities

U.S. stocks ended higher Tuesday, with the S&P 500 closing at a record high, as investors assessed corporate earnings reports amid concerns over the coronavirus and Chinese regulatory action against technology stocks. All three major U.S. stock benchmarks ended higher after choppy trading in the morning.

U.S. factory orders rose 1.5% in June on stronger demand for airplanes, oil and other industrial goods after a 2.3% increase in the previous month. Economists polled by Reuters had expected a rise of 1% in June.

As of last Friday, 88% of S&P 500 index companies had reported beating earnings estimates for the second quarter, the highest percentage since FactSet began tracking this data in 2008. The Caixin/Markit services Purchasing Managers’ Index for July came in at 54.9 on Wednesday, up from June’s reading of 50.3 although the spread of the COVID-19 Delta variant across the country threatens to undercut the recovery in the world's second-biggest economy.

Japan’s services sector activity shrank at a faster pace in July to contract for the 18th consecutive month as curbs rolled out to combat resurgence in coronavirus infections dealt a blow to business activity and confidence. The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) dropped to a seasonally adjusted 47.4 from the previous month’s final 48.0 level, and compared with a 46.4 flash reading.

Asian shares advanced to one-week highs on Wednesday, led largely by strong U.S. corporate earnings, although the mood remained cautious as the rapidly spreading Delta variant of the coronavirus clouds the global economic outlook.

Indian benchmark indices crossed the all time highs and closed almost at the intra day high on Aug 03 helped by encouraging macro data. Nifty ultimately closed 1.55% or 245.6 points at 16130.8. In the process the Indian markets outperformed their Asian peers who were mixed in a small band.

Nifty brushed past through 16000 levels easily and closed higher. However volumes and AD ratio (equal on such a day) do not give confirmatory signals. However momentum is in favour. Hope that India will be a beneficiary of the recent troubles faced by China is keeping sentiments upbeat. While valuations seem high, there is no point in pre-empting a top, but rather wait for signs of medium term change in trend.

Daily Technical View on Nifty

Observation: Markets surged sharply higher on Tuesday after breaking out of its recent highs on Monday. The Nifty finally gained 245.6 points or 1.55% to close at 16,130.75. Broad market indices like the BSE Mid Cap and Small Cap indices gained less, thereby under performing the Sensex/Nifty. Market breadth was positive on the BSE/ NSE.

Zooming into the 60 minute chart, we can see that the Nifty opened with an up gap and then gradually rose through the day. A strong surge in the late afternoon session helped the Nifty to close above the 16100 levels.

The short term trend therefore remains up with the Nifty surging higher after breaking out of a downward sloping trend line on the 60 minute chart. The Nifty also trades above the 20 period MA and 50 period MA on the 60 min chart. The short term intraday momentum indicators are however in overbought territory, which suggests that there could be short term corrections. Further upsides are likely once the immediate resistance of 16147 is taken out. Crucial supports are now at 16028.

On the daily chart, the Nifty continues to hold above a rising trend line that has held the important lows of the last few months. This implies that the index remains in an intermediate uptrend. The index also continues to trade above the 20 and 50 day SMA, which gives further evidence of an uptrend. And yesterday, the Nifty has broken out of the 15451-15962 trading range, which is an encouraging signal for the uptrend to continue. A close above 16147 would accelerate the uptrend. Crucial supports to watch for a short term trend reversal are at 15900.

Conclusion: The 1-2 day trend of the Nifty remains up with the Nifty surging higher after breaking out of a downward sloping trend line on the 60 minute chart. The Nifty also trades above the 20 period MA and 50 period MA on the 60 min chart.

On the larger daily timeframe, the Nifty has broken out of the 15451-15962 trading range and also trades above the 20 and 50 day SMA, which gives further evidence of the uptrend to continue. Short term trend reversal levels are at 15900.

Nifty – Daily Timeframe chart

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