Market rally may pause in couple of days

The Indian equity market continued to rally on Monday with the benchmark indices closing at a fresh lifetime high. The FPI funds are increasing to flow into the Indian market as the dollar index is hitting new lows. The Nifty gained by 97.20 points and closed at 13,355.75. PSU Banks, Pharma, FMCG led the market today.

The Mid and Smallcap stocks were also in the limelight. The market breadth is very positive as 1385 stocks closed higher, and 528 stocks declined. About 328 stocks were unchanged. As many as 178 stocks hit the new 52-week high today. Only seven stocks closed at their 52-week low. Even though the market is trading at stretched valuations, there are no triggers to dampen the sentiment.

As expected, the tight range breakout has given a sharp move. Nifty formed a strong bullish candle with increased participation from the broader market. Nifty hasn't closed below the prior bar even on the lower timeframe chart.

It is moving in a linear 45-degree angle upwards trending with enough consolidations. It has broken three bases on the 75 minutes chart. Generally, we can't expect beyond four bases in an uptrend. As the indicators reached to extreme overbought conditions, the rally may pause in two or three days and consolidation for some time.

The momentum slightly improved on Monday. The RSI broke out of a downward channel and reached an overbought condition on the lower timeframe. The Stochastic oscillator is in an extremely overbought zone since the first week of November. The tight range breakout target placed 13,500-13,534 zone. As we are near to the target zone, it is better to book some partial profits.

The Relative Rotation Graph (RRG) shows, there are seven sectors in the leading quadrant. They include, Bank, PSU Realty, Metal, Auto, PSE, Commodities and Energy sectors that were leading the market now. There is no sector in lagging currently. This shows that across the board participation in the market rally. As long as the Nifty trades above the prior low (Now 13,241) continue to be optimistic about the market direction.

(The author is a financial journalist, technical analyst, trainer, family fund manager)