Markets awaiting more confirmations for uptrend

The domestic markets extended the rally to above the key resistances and registered one of the most bullish weeks for the last one year. NSE Nifty rose by 438.80 points or 2.62 per cent during the last week. BSE Sensex is also up by 2.7 per cent. The broader market indices Nifty Smallcap-100 is the underperformer with just 0.6 per cent, while Midcap-100 is up by 2 per cent. The Auto, PSU banks, and FMCG sector indices were the laggards with less than a percentage decline. The Nifty Metal index is the top gainer by 7.7 per cent, and the Media index is up by 5.2 per cent. FII selling was receded to just Rs6,567.71 crore during the last month. The DIIs bought Rs10,546.02 crore.

The Nifty registered a monthly gain of 1,378 points or 8.74 per cent. It closed at three months high. The index closed above the key resistance line prior to swing and 200DMA and 40 weekly average. Earlier, it was expected that the market may turn down these resistances. As the market negated these levels, the upside potential is the current probability. The earlier target of 14,000 zone may not be possible in the current structure. With the fresh breakouts, the market is in a confirmed uptrend and needs to change its stance accordingly. Earliest projected, the 40-week average, may act as stiff resistance, which is currently placed at 16979, which may act as support for now. Only below this level market may enter a counter-trend to form a higher low. This probable may be base support for the long-term bullish trend.

As the Nifty formed two consecutive strong weekly bullish bars and is above the key resistances, the downtrend ended. Now, it is the time to get more confirmations for an uptrend. Since the 17th June low, the Nifty has been up by 1989 points or 13.1 per cent. The previous major upswing ended with a 15.59 per cent gain. The first upswing in the downtrend is 11.82 per cent. The major sloping trend line resistance is placed at the 17700 zone, and the previous major high was at 18114. The recent swing high of 16793 is only an intermediate swing high in the broader downtrend. Now, the 16793-978 zone is the crucial support for the current uptrend.

The Nifty has extended the rally above the 38.2 per cent retracement level of the previous major trends. The immediate extension level is at 17410. The Nifty may test this level next level. The current upswing has three corrective consolidations. And the fourth one will be the last. We must wait and watch where the consolidation will break upside down or give bearish signals. The index began with corrective moves, and the three sessions were very strong up moves with two solid gap-up openings.

On a daily chart, the RRG Relative Strength is still below 100, and the momentum moved above 100. Next week we may both will be above 100, which means the benchmark index has entered the leading quadrant. It just closed above the Anchored VWAP resistance, which is another positive sign. Currently, the Nifty is trading 6.32 per cent above the 50DMA and 5.10 per cent above the 20 DMA. The previous major swing retraced back when the Nifty moved over 6 per cent. The weekly MACD has given a fresh buy signal. After the breakout of a channel, the RSI retested the breakout level and bounced above the prior high, which has also given a bullish signal. The ADX is near the 20 zone, and the+DMI cross over the -DMI is a bullish setup. No indicator is any bearish divergences for now.

In these conditions, hold the long positions for a target zone of 17700-900. Focus on the leading and defensive stocks. BFSI, IT, and Pharma sectors may outperform the broader market. Stay on stock-specific and keep trialling stop loss to protect the profits on the table.

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