Nifty breaches upward channel

The Federal Reserve's decision to increase the interest rates by only 75 basis points has resulted in a sentiment booster for the global equity market. The domestic benchmark index, Nifty rallied by 287.80 points or 1.73 per cent on a monthly derivatives expiry day. The Nifty IT and Fin Nifty led the rally on Thursday with 2.81 per cent and 2.37 per cent. The Realty index is also up by 2.07 per cent. The Bank Nifty is up by 1.62 per cent. Pharma, FMCG, and Auto indices were the underperformers with less than half per cent gains. The broader market indices, Nifty Midcap-100 and Smallcap-100 indices, were up by 0.85 per cent each. The India VIX is down by 6.16 per cent. The market breadth is positive as 1,104 advances and 769 declines. About 45 stocks hit a new 52-week high, and 92 stocks traded in the upper circuit. Bajaj Finance, Bajaj Finserv, and Tata Motors were the top trading counters on Thursday in terms of value.

The domestic equity market rallied over 2.5 per cent in two days. The benchmark index gained over 500 points from Wednesday's low. Thursday's huge gap opening on the monthly expiry day is unique. Interestingly, Thursday's 287 points rally did not attract the volume recorded less than the previous day. On an extremely positive day, this data gives some suspicion. The Nifty closed above the prior swing high, which was recorded on June 3. After three days of the gap, it once again closed above the upper Bollinger band. With Thursday's move, the Nifty has retraced over 50 per cent of the current 8-month-long downtrend.

The Nifty also broke the upward channel. The 200DMA is placed at 17029, which may be the immediate target and resistance too. The Nifty may experience strong resistance at 16983, which is a 61.8 per cent retracement level of the most recent major downswing. This 16983-17029 zone will be the immediate resistance. On the downside, only a close below today's low, 16746, will be the first sign of weakness. As the Nifty over extended the rally, it is better to be with a cautiously positive bias. There is no scope for shorting now, as the sentiment is strongly bullish.

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