MACD histogram shows bullish momentum

Domestic equities sharply bounced over 300 points from the day's low on a May F&O series expiry. The Nifty closed at 16170.15 with 144.35 points or 0.90 per cent gain. The rally was mainly a bounce in beaten Metal stocks and the Banking stocks. The Metal index gained by 2.67 per cent and the Bank Nifty up by 2.2 per cent. The PSU Bank's index has rallied by 3.16 per cent. The Fin Nifty and IT index is up by 1.97 per cent and 1.33 per cent. The other sector indices are up by 0.3 per cent to one per cent. Only FMCG and Energy indices are down by 0.22 per cent and 0.07 per cent, respectively. The market breadth is positive as 1202 advances and 866 declines. About 224 stocks hit a new 52 week low, and 201 stocks traded in the lower circuit.

For the last three weeks, the Nifty has been trading in the 15735-16404 range. It is forming a base in the zone after a decline of 9.4 per cent from the previous base top. The index failed to cross the 23.6 per cent retracement level of the downswing, even after three weeks. It formed higher bottoms, but still below the 20DMA. The 20DMA and the upper Bollinger bands are in a downtrend, and the lower band is flattened. This is because of ongoing consolidation. As the expiry session was on, the Nifty bounced over 160 points in just an hour due to the short covering.

Currently, the 20 TEMA is working as support, and as of Thursday, also it bounced from it. Thursday's short-covering recovery has not succeeded in crossing the previous day's high. The sharp recovery needs follow-through for bullish confirmation. For reversal on the upside, it has to cross 20DMA (16321) first and then close decisively above the 16400. The MACD histogram shows a strong bullish momentum. As the consolidation is already ten days, many frontline stocks HDFC twins are nearing the base breakouts. Let's watch for these frontline stocks' behaviour. If these are the breakout candidates, then avoid a short position in the index. But, at the same time, wait for a base breakout to go long. We are expecting a breakout on either side within 3-4 days.

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