Nifty Formed A Bullish Engulfing Candle

With the surprising RBI monetary policy, the Nifty reclaimed the 25000 level, a significant milestone indicating a positive market sentiment. The central bank reduced the repo rate to 5.5 per cent, which further boosted the market. The Nifty gained by 252.35 points or 1.02 per cent last week, reflecting the market’s positive response to these developments. The BSE Sensex is up by 0.91 per cent. The Midcap-100 and Small-cap-100 indices outperformed, gaining 2.77 per cent and 3.91 per cent, respectively. On the sectoral front, the Realty is the top gainer with 9.51 per cent, followed by the Metal index with 2.32 per cent. On the downside, the Media is down by 0.32 per cent, and the Nifty IT declined by 0.07 per cent. The India VIX is down by 9 per cent to 14.63. The market breadth is mostly positive. The FIIs were net sellers as they sold Rs3565.88 crore, and the DIIs bought Rs25,513.43 crore worth of equities. After consolidating for 18 days above the 61.8 per cent retracement level, the Nifty sharply bounced to above 25000 levels. The 61.8 per cent retracement level of 24545 has become a rock-solid support. The bears tested it at least seven times in the last three weeks, but their efforts were in vain. The Nifty is still in the defined range of 24500-25100. As the index tested the resistance line, the potential for a breakout is high, especially if it closes above 25116 with a strong move and volume. If the Nifty achieves this, the immediate target is at 25360. In most bull case scenarios, the index may test 25694, which is a 61.8 per cent extension of the recent swings.

On a weekly timeframe, the index has formed a bullish engulfing candle, which is positive. The only concern is the volume last week. On an over one per cent advancing day, the volumes are low. Even on a weekly basis, the volumes were lower in the last three weeks. The Nifty holds nine distribution days, which is the highest number in recent times. Any further addition of distribution days means that the bulls are not convinced about Friday’s move. The Bollinger Bands are contracted sharply on Friday, marking another rare technical development.

During the 2022 correction, the index retraced 80 per cent and consolidated for a period. This time, it is already retraced 75 per cent. Let us wait and see how it will behave this time. The Nifty is facing resistance at the sloping trendline drawn from the all-time high. If it is able to violate decisively, as the underlying is bullish bias, it can test the 25350 and above levels. If a breakout is not a reality, expect more consolidation within the range.

The RSI has entered the bullish zone on the weekly and daily time frames, a positive sign. The Weekly MACD is also bullish, further reinforcing the positive outlook. Importantly, there are no divergences visible on any time frame, providing additional reassurance about the market’s direction.

In the coming week, it’s crucial to maintain a positive outlook, given the underlying bullish trend. Waiting for a decisive breakout is the best strategy, as there is no opportunity for a short position. Keep an eye on the many mid and small caps coming out on a weekly basis, as they offer better momentum and relative strength. The interest rate-sensitive stocks may continue to be in the limelight, and the Realty sector stocks are showing more strength. The PSU banks and Financial may continue to outperform, so stay positive and keep a watchful eye on these sectors.

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