Nifty may extend rally

The equities rallied for the fourth successive week and reached near an all-time high. NSE Nifty gained 262.60 points or 1.41 per cent in the last five trading sessions. The 30-share BSE Sensex is up by 1.21 per cent. The broader market indices, Nifty Midcap-100 and Smallcap-100, advanced by 2.90 per cent and 0.26 per cent, respectively. On the sectoral front, the Nifty Realty and FMCG indices were the top gainers with 3.74 per cent and 3.48 per cent, respectively. Only Bank Nifty ended with just a 0.12 per cent decline. FIIs bought Rs6,886.77 crore, and the DIIs bought Rs4,329.75 crore during this month. India VIX declined to 10.84, its lowest close after December 27, 2019 (10.53).

The Nifty has registered the highest close after November 30, 2022. It almost tested the previous all-time high as it went up to just 22.9 points below the previous high. It closed above the previous week’s high. During the last week, except for Thursday, on all days, the index closed positively. The last two weeks of indecisive and bearish patterns were negated with this higher close. As mentioned last week, the Nifty is looking at the 86-week-long consolidation breakout. The breakout’s immediate target is at the 19117-510 zone. There are no signs of confirmed weakness or bearishness; the possibility of breaking out is high. The only question is, above the 19000 level, will it sustain?

Friday’s massive recovery is because of rebalancing the FTSE, which resulted in net inflows into the domestic market. Still, the below-average volume is raising doubts about the sustenance of the breakout. The rally on a not so strong market breadth, and historically lowest VIX, are always negatives for the market. In all up moves, volumes were lower too. Trends sustain on higher volume and on a consolidation, volume decline. During the current upside swing, the index has formed five bases and broke out. Normally, in any trend, more than five bases may sustain for a longer period. The decline in the last 30 minutes with huge volume suggests something went wrong.

The Nifty almost retraced 100 per cent of the prior fall. Now, the Fibonacci Extension level of 127.6 per cent is at 19,550. This can be achievable after retesting a breakout. In any case, if the breakout fails by closing below the previous week’s low, the probability of extending the rally will be low. The current swing consumed more time with low volume is not giving utmost confidence in building fresh exposure or employing new capital.

The weekly RSI made a fresh high, above the 20th November week, which is a bullish signal. But the daily RSI still have a negative divergence. The weekly MACD line has yet to make a new high, but the histogram shows bullish momentum. The Relative strength and momentum are declining sharply and lagging when compared to the broader market index Nifty 500. At the same time, the heavyweight sector indices Bank Nifty and FinNifty are relatively underperforming. If these divergences are erased, we can see a sustainable breakout.

For next week’s opening, stay positive and continue the long positions if any. A move above 18,888pts will result in a breakout and can test 19,000-19,145 level. As we stated earlier, the bears will not get a chance to dominate the market unless it closes below the prior swing low. The rally in the global markets also fuelled the sentiments. Now, only a close below 18,710-662 will give early signs of weakness. The 8EMA support is at 18,693pts, and the 20DMA is at 18,563pts. Even the minor swing low is at 18,555pts. This zone of 18,555-693 is very important to continue the rally. There are increased chances of hitting a new lifetime high next week, any time.

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