Bollinger bands indicate consolidation till 17700

The domestic equity markets continued the rally and closed above the key resistance. The benchmark index, NSE Nifty, advanced by 175.15 points or 1.01 per cent and settled at 17486.95. Most of the sector indices gained over one per cent. The Media is the top gainer with 2.14 per cent. The Pharma and Fin Nifty gained by 0.20 per cent and 0.63 per cent. The remaining sector indices advanced by 1 to 1.7 per cent. The VIX is further down by 5.24 per cent. The market breadth is positive as 1209 advances and 673 declines. About 44 stocks hit a new 52-week high, and 71 stocks traded in the upper circuit. Reliance, TataElxsi and HDFC were the top trading counters on Tuesday.

The Nifty opened with another 293 points gap up and traded in the first hour's range. It closed above the 6th October minor high, resulting in a breakout of an ascending triangle or double bottom pattern. The index also retraced more than 50 per cent of the prior downtrend. After a big gap-up opening, the index lost the momentum to go further highs. It just closed below the 50DMA. As mentioned earlier, a close above the 50DMA (17493) is a strong bullish sign. From here, the next 100 points range is very crucial for the index for a strong bullish directional view.

The 50-200DMA range is intact, and any upside breakout will lead to retesting of the previous high. Interestingly, with Tuesday's rally, the Relative Strength Index has broken out of a downward channel. If the current upside move continues, the RSI may test the 65-70 zone again. The MACD histogram shows an increase in momentum.

But, on the hourly chart, the momentum was lost because of the narrow trading range during the day. The channel resistance is placed at 17630. The Bollinger bands further narrowed, indicating the consolidation may continue and indicating the upside is limited to below 17700. As Diwali or Smavath is nearing, positive sentiments are pouring into the market. It may be positive to neutral for some more time. Intraday trades will be a challenging task as the daily ranges shrink.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)