What is your stock trading view for Monday 21st March after the sharp rally seen in last few days?

During the previous week ended on Thursday, 17-March, the Nifty rallied by 3.96% while the Sensex rallied higher by 4.16%. The mid cap and small cap indices grew by just about 2% as most of the action was concentrated in the large caps. The institutional buying was coming into large caps and most of the short covering was also happening in the large cap stocks.

Let us now turn to market structure. The overall breadth of market as measured by the advance decline ratio or the A/D ratio was smartly favourable at 46:4. However, the good news was that VIX fell sharply to 22.61 levels. Despite higher than expected inflation and the hawkish tone of Fed policy, the Indian markets appeared to be almost unperturbed.

For a change FPIs infused Rs.2,800 crore into equities even as domestic funds sold stocks worth Rs.678 crore on Thursday. FPI buying was largely index buying by Vanguard. Globally, Dow bounced 274 points and NASDAQ rallied 279 points while European markets were flat to positive. SGX Nifty is nearly 121 bps higher in early trades on Monday.

A large part of the recent rally has happened in a very short span of time and at a rapid pace. The Indian markets almost are appearing too sanguine despite the Fed rate hike and the aggressive language of the Fed. However, that looks more like a knee jerk reaction. Traders must wait for the VIX to linger longer at lower levels before taking buy calls.