Consolidation right around the corner

The equity indices rose sharply higher on a weekly derivatives expiry day. All the sectoral indices participated in the rally. NSE Nifty gained by 395.20 points or 1.60 per cent and closed at 25,062.1. The Nifty India Defence index continue to be top gainer with 2.62 per cent. The Auto, and Realty indices up by 1.92 per cent each. The Metal, Media, Infra, and Consumption indices up by over 1.5 per cent. All other sectoral indices up by 0.5 per cent to 1.5 per cent. The India VIX is down by per cent to 17.03. The market breadth is positive as 1,980 advances and 890 declines. About 59 stocks hit a new 52-week high, and 175 stocks traded in the upper circuit.

Cochin Shipyard. HDFC Bank, Reliance, ICICI Bank and GRSE were the top trading counters in terms of value.

Surprisingly, the equities sharply bounced and came out of the last two days of indecisiveness. The Nifty decisively closed above Monday’s and psychological 25,000 mark. The higher and above-average volume validates the range breakout. It is decisively above the prior major swing high. Now, consolidation was limited to just two days with an inside action. Now, the index is just 4.42 per cent away from the all-time high. After a dull morning session, the Nifty suddenly bounced after two hours of trading. In just two hours, it rallied 445 points. It formed a strong bull candle on the weekly time frame. The weekly volumes were also above average. All heavy-weight stocks contributed to the rally. Reliance, ICICI Bank, and HDFC Bank together contributed over a hundred points to the Nifty gain. With this rally, the index recovered 75 per cent of the prior decline. The 28 weeks of fall were about 17.25 per cent. 75 per cent of this decline recovered in just six weeks. This faster retracement may test the prior high, but the continuation is a question mark. Every impulse rally with over 45 degrees will be short-lived. The recovery rally is mainly news-driven, not fundamental. So, expect the consolidation to begin in the next 2-3 weeks. Stay with a positive bias, with an at-most vigilant manner.

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