Index may retrace breakout level

The equity market scaled another new lifetime high. For the second consecutive day, the NSE Nifty was up by over a hundred points. The benchmark index closed at 16,258.80 points with a gain of 128.05 points. The BFSI sector is in the limelight as India's largest lender State Bank of India (SBI) has declared a record level of quarterly profit. Bank Nifty and Fin Nifty gained by 2.33 per cent and 2.59 per cent respectively. All other sector indices succumbed with declines. The Realty and Media indices are down by 1.67 per cent and 1.21 per cent respectively. The other indices down by less than a per cent. India VIX is down by 3.89 per cent. The overall market breadth is negative as 1,358 declines and 584 advances. All most all the thematic indices have a negative breadth. The broader market indices Nifty Small-cap and Midcap indices, are down by 1.01 per cent and 1.19 per cent. About 176 stocks made a 52 week high, and 150 stocks traded in the lower circuit.

The Nifty made another big move after the 34 days consolidation breakout. It opened with a gap-up and sustained the initial gains. This faster retracement of a breakout met the pattern target in just two days. The Nifty extended exactly 161.8 per cent (16240). Sustaining above this level is an important task for now. Only a move below 15,106 gives a weak signal, and the index may retest the consolidation breakout level.

This massive breakout is on negative market breadth. Even today, 31 declines in Nifty-50, and 361 declines in much broader index Nifty-500. The profit booking in small-caps and mid-caps is another concern. Banks and Financial Services sectors stocks lead the rally on Wednesday. All other indices are in the negative zone. Just one sector leading the market, and the weakness in the broader market is not a good sign. On a 75 minutes chart, the positive momentum has declined. And the major indicators are in over conditions. As the weekly expiry is in place and the breadth is negative, the index may retrace or retest the breakout as a probability. A move above the prior day high will continue the momentum, and a close below the prior day low is negative for the market. Try to pare the position size for now.