The Fed’s narrative that the inflation in the US is transitory got a boost yesterday as the CPI data showed that it has risen less than expected. The Dow surged 220 points to close at a fresh high and there was a smart pullback in risk assets like crude.

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The Asian market though is still mixed as the COVID situation remains a risk. The SGX Nifty seems to indicate that the Indian market will start with front foot forward. The key theme yesterday was the sharp intra-day recovery in both Nifty and the broader market. The Nifty rallied 120 points from lows to close flat while the advance/decline improved from a scary 1:10 in the morning to 1:2.

Today’s overriding cue though is going to be the weekly options expiry and if you combine the options data and market technical, you get a range of 16,162 on the downside which is yesterday’s low to 16,350-16,400 where some Call spreads seem to have been taken in yesterday’s trade. Any break of this range is likely to lead to a bigger move which is not the base case scenario.

The larger question though is on the health of the broader market. The midcap index has now fallen 3.5 percent and small-cap index is down 6 percent from the recent peak. Anecdotal evidence suggests that the midcap shakeout may have another one or two days left and that should lead to cleansing out of froth. Do remember, this is a bull market correction and not a bear market and hence chances are the things will finally resolve on the upside.

What else could traders focus on? Well, the overarching theme has been the return of laggards. Stocks like Bharti (up 11 percent), HDFC (up 9 percent), Kotak Mahindra Bank (up 7.6 percent), RIL and HDFC Bank (up 4-5 percent) have made a big comeback and with their sheer weight have made sure that the Nifty bulls do not suffer the pain that the portfolio investors may have seen. Chances are that the Nifty makes yet another new high and resumes its journey towards 16,500. Of course, yesterday’s low of 16,162 becomes sacrosanct and this theory gets nullified below that.

Have a good trading day folks!