The Indian market played as per script yesterday. There was a | Anuj Singhal CNBC Awaaz Managing Editor

The Indian market played as per script yesterday. There was a second day of rally in large caps, a massive catch up play in Bank Nifty and a big decline was seen in the midcaps and Small Caps. Now, why do so many patterns play out over and over again in stock markets? That’s because ultimately Stock market is about 2 human emotions – greed and fear and despite the invasion of artificial intelligence and machine trading, these 2 human emotions still overrule everything else.

Now, what does anecdotal evidence tell us about today’s trade and the market action going forward? For starters, today is weekly expiry and the market is sitting on 2 days of back to back rally. However, yesterday’s rally was not as broad based as Tuesday’s. In fact 4 financial stocks contributed more than the rally itself on the Nifty. The market breadth was very poor, with 5 stocks declining for every 2 stocks rallying. Anecdotally, that has been a signal of some consolidation after 2 strong days of Index rally. The options data indicates some resistance at 16,300 and 16,350 on Nifty and 36,250-36,300 on Bank Nifty. However, given the momentum, if the Indices take these levels out, a further upmove cannot be ruled out though that’s not the base case for today.

The Bank Nifty has played a big catch up to Nifty after the recent underperformance and the question everyone seems to be asking now is that if Vodafone Idea is emerging as a risk to the Bank Nifty rally. On that, my view is very simple – Was the market unaware of a potential default by Idea as a risk? Absolutely not. Can any potential Idea default derail the Banking system completely? Absolutely not. There are 2-3 banks for which it’s a large exposure and the market has discounted a worst case scenario already.

What about the large cap vs midcap action after yesterday’s move? Well it’s entirely possible that midcaps see some more profit taking, especially given the stupendous rally of this year but once again if you go by the anecdotal evidence of bull markets, these moves last for a limited time and eventually the midcap and Small Cap outperformance resumes once the expansion phase of Index is done

TRADE SETUP
Nifty up 120 points; HDFC twins, ICICI, Kotak contributed 140 pts
Market breadth was very poor, both in Nifty and Midcaps
Market has seen 2 back to back strong days
Anecdotally, market consolidates after 2 days of strong rally
Weekly expiry today, Call spread seen in yesterday’s trade
Further rally possible if Nifty sustains above yesterday high of 16,290
Bank Nifty may have more catch up but today could be volatile

LARGE CAP VS MIDCAP ACTION
Index This month This year
Nifty 3.1% 16.3%
Midcap 0.4% 34%
Small Cap -0.4% 48%

LARGE CAP VS MIDCAP ACTION
Some more catch up for large caps is possible
Underlying theme of midcap outperformance to continue
Midcap outperformance resumes once Nifty consolidates