Charts Indicate Consolidation

The 5 months of correction recovered by 75% in 3 months. If the index forms a new high by month, it will continue to be in an uptrend for at least the next one year. There could be corrections, consolidations. Unless there is a lower low, the trend is firmly upside

A relief from the Indo-Pak war tensions and the tariff war, the equities turned jubilant last week. After an over 12 per cent rise from the 7th April low, the index took a breather last week. The Nifty decisively closed above the 61.8 per cent retracement level of the prior fall. It erased 75 per cent of the losses. The highest volume after 4th June indicates the strong buying interest. The FIIs are back with aggressive buying, and the DIIs continue to buy more equities. This institutional activity supported the market to rally further above the key resistance.

NSE Nifty began the week with a 3.82 per cent violent move on Monday. After two days of inside Harami action, the index again sharply gained another 395 points on Thursday. The market regulator, Sebi, had suspicions about these violent moves and ordered an inquiry to find out if there was any manipulative activity. Technically, the index closed above the prior major high, with volume support. It is just 1,257 points, of 4.79 per cent, away from the all-time high. In the last six weeks, the Nifty gained 3,372 points or 15.51 per cent from the 7th April low. The impulsive recoveries are normal in the bear market. However, as long as the Nifty trades above the 50-week average of 24,033 points, it is better to be with a positive bias. A close below the previous week’s low will be the first sign of weakness.

As the market sees a stronger participation from the broader market and a perfect sector rotation, the positive trend may continue. For the near term, the 25,307-350 zone may act as resistance. The Nifty may enter into another round of consolidation near the resistance level. On the downside, the 24,700-500 zone will act a strong support. Expect the probable consolidation may not breach the 20 DMA currently at 24,394 points.

The Weekly RSI shifted its range into the strong bullish zone. It has strong bullish implications for the medium term. The daily RSI is flat and oscillating around the 60 for the past four weeks, even after an over eight per cent rally in this period. This is another reason for expected consolidation. The ADX line began its uptrend is an indication of improving trend strength. No indicator is showing the divergence on any time frame.

The five months of correction recovered by 75 per cent in three months. If the index forms a new high by month, it will continue to be in an uptrend for at least the next one year. There could be corrections, consolidations. Unless there is a lower low, the trend is firmly upside.

The Nifty India Defence sector index was the top gainer with 17.21 per cent last week, and PSE and CPSE indices gained over 7.2 per cent, each. This shows the buying interest in these sectors has renewed. The relative strength as well as the momentum is very strong. The FMCG, Consumption, and Infra sector indices are in the leading quadrant and may outperform the broader market. Commodities, FinNifty, and Bank Nifty are losing momentum. The Energy and Midcap-100 indices rolled in the improving quadrant with higher momentum, These sectors may begin outperforming.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)