Follow-through session key to sustain the rally

Mumbai: The benchmark indices finally crossed the Herculean resistance. For the first time, it closed above the 16,000 level with a big-bang move. It rose by 245.60 points or 1.55 per cent and settled at 16130.75. The Bank Nifty is also up by 1.51 per cent. FinNifty, Auto, IT, Pharma, FMCG, and Infra indices are up by 1 to 1.7 per cent range.

Interestingly, the small caps underperformed the market with a 0.24 loss. Media and metal indices also declined in Tuesday's market. The overall market breadth is at 1:1 as 970 advances and 986 declines. About 235 stocks hit a new 52-week high, and 193 traded in the upper circuit.

Finally, the Nifty has broken out of a 34 days (Fibonacci number) long tight consolidation with a sharp retrace. This is what we are expecting for the last few. As we mentioned about the price and time maturity and the faster retracement, this explosive move is the nature of the tight consolidation breakouts. Earlier also, we expected the Nifty to touch 16,150. It has become a reality now.

The breakout candle is all almost equal to the consolidation range. As the Nifty in uncharted territory, all the moving averages turned up. The Moving average convergence divergence (MACD) line moved above the signal line and was given a buy signal. The RSI closed above the 65 zone and the prior swing high. To continue this explosive move, it requires a cross above the 16,205-16,234 zone.

The follow-through day is very important to continue the rally. A majority of sectoral indices gained over one per cent, which shows the broader participation in the market. At the same time, the market breadth is not as great as the market moved. This is a typical contradiction in the market. The VIX rose by 7.36 per cent, which is another hidden hint in the market. Let us be with a positive bias for now, as long as it trades above the breakout level.

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