India’s benchmark Nifty Futures recovered 70 points intraday after registering a low of 11515. The index bounced off and nullified the 84 points fall from the day’s high and closed at 11585 approx. The important question is why is Nifty trading sideways?
The Ratio Effect
Nifty has slipped into a narrow band as the institutional traders have created ratios in the index effective the 10th of July. At the close of market today, the ratio has generated 50% returns already. Since the Fed Chairman Jerome Powell testified before the Congress last Wednesday, Nifty traded in a range of 175 points between 11642 and 11467 approx. Powell’s indication of a possible rate cut at a time when the US unemployment rates are at a historic low of 3.6% has been the primary reason behind the formation of the ratio in Nifty.
Can The Market Form A Clear Trend?
For a clear direction to be formed, the institutional traders must unwind the existing ratios in Nifty. With mixed data points at hand, the market is eagerly waiting for clarity from the Federal Reserve. However Nifty might witness large swings if the ratios are wrapped up or the Fed does another U-turn towards the end of the July contract.