Markets are waiting for more confirmations for the uptrend

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Home markets extended the rally above key resistance and recorded one of the most bullish weeks in the past year. NSE Nifty is up 438.80 points or 2.62% over the past week. BSE Sensex is also up 2.7%. Broader market indices Nifty Smallcap-100 are underperforming just 0.6%, while Midcap-100 are up 2%. Indexes for the autos, PSU banks and consumer staples sectors lagged with less than a percentage decline. The Nifty Metal Index is the top gainer at 7.7% and the Media Index is up 5.2%. The sale of FII fell to just Rs 6,567.71 crore over the past month. DII bought Rs10,546.02 crore.

The Nifty recorded a monthly gain of 1,378 points or 8.74%. It closed at three months high. The index closed above the key resistance line ahead of the swing and 200DMA and the weekly average of 40. Previously, the market was expected to drop these resistances. As the market denied these levels, the upside potential is the current probability. The previous target of 14,000 zones may not be possible under the current structure. With the new breakouts, the market is in a confirmed uptrend and needs to change position accordingly. The first projection, the 40 week average, may act as a rigid resistance, which is currently placed at 16979, which may act as support for the time being. Only below this level can the market enter a countertrend to form a higher low. This likely may be basic support for the long-term uptrend.

As the Nifty has formed two consecutive strong weekly bullish bars and is above key resistances, the downtrend has ended. Now it’s time to get more confirmations for an uptrend. Since the June 17 low, the Nifty has risen 1989 points or 13.1%. The previous major rally ended with a gain of 15.59%. The first rise in the downtrend is 11.82%. Major sloping trendline resistance is placed in the 17700 area, and the previous major high was at 18114. The recent high of 16793 is just an intermediate high in the broader downtrend. Now the 16793-978 area is the crucial support for the current uptrend.

The Nifty extended the rally above the 38.2% retracement level of previous major trends. The immediate extension level is at 17410. The Nifty can test this level at the next level. The current rally has three corrective consolidations. And the fourth will be the last. We have to wait and watch where the consolidation will break down or give bearish signals. The index started with corrective moves, and all three sessions were very strong bulls with two solid gap opens.

On a daily chart, relative strength RRG is still below 100 and momentum has moved above 100. Next week we may both be above 100, which means the index of reference entered the main quadrant. It just closed above the Anchored VWAP resistance, which is another positive sign. Currently, the Nifty is trading 6.32% above the 50DMA and 5.10% above the 20DMA. The previous major swing returned when the Nifty broke above 6%. The weekly MACD gave a new buy signal. After a channel breakout, the RSI retested the breakout level and bounced above the previous high, which also gave a bullish signal. The ADX is near the 20 area, and the +DMI crossover on the -DMI is a bullish setup. No indicator is signaling bearish divergences at this time. Under these conditions, hold long positions for a target area of ​​17700-900. Focus on leading and defensive actions. The BFSI, IT and Pharma sectors can outperform the broader market. Stick to specific stocks and keep testing the stop loss to protect profits on the table.

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

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