Nifty on a cusp of breakout for new lifetime high

NSE Niftyedges higher after taking a two-day breather. The Nifty oscillated in the 329.70 points range and closed with 295.95 points or a 1.63 per cent gain. BSE Sensex is up by 1.25 per cent. The Nifty Midcap-100 and Smallcap-100 are up by 2.69 per cent and 1.20 per cent. The Nifty Metal and the Pharma indices were the top gainers with 5.65 per cent and 3.94 per cent, respectively. Only the Nifty Financial Services index is down by just 0.26 per cent. The Market breadth is positive in all sessions. The FIIs continued their buying interest. They bought Rs20,606.80 crore during this month. The DIIs sold Rs1,192.47 crore worth of equities.

The Nifty registered a third-highest weekly closing. It is just another 388 points away from the all-time high. Earlier, the highest weekly closing was at 18,696.10 points. It formed another bullish candle on a massive move. It took support at 20DMA twice in the last six days. The Nifty gained and lost in alternate weeks for the last six weeks. All the bearish patterns failed to get a confirmation for their implications. A bearish Engulfing, Shooting Star, and Dark Cloud Cover candles are known for strong bearish sentiment when they form at the swing high. But this time, all these bearish candles failed. As the Nifty is at a near all-time high, we are entering into the decisive phase of a trend.

The Nifty is at the cusp of a breakout to a new lifetime high. Irrespective of the US debt ceiling crisis, the global and domestic markets rallied impulsively. On Saturday, the White House and the Republicans reached a tentative deal on the debt ceiling. It may lead to a pause in quantitative tightening, and there will be a rate reduction in the near future. As the market smelled this development, the bulls came back with renewed strength. The S&P 500 already made a new swing high, as the technology stocks rallied the most. Monday is a holiday for the US markets. Let us watch the response from our market.

The Nifty has formed two bases before the current level in the 9-week rally. Except for two weeks, the volume is below the average. The high volume up days is the hallmarks of buying interest. Now, the rally with low volume shows a lack of conviction buying interest in the market. The Nifty may open with a positive bias and may test the 18,600-18,696 in a faster manner. It needs to sustain above the first-hour range to make a new high. If it faces resistance at this level and is unsuccessful in making a new high in the next 3-4 days, it may lead to a profit booking. But only a close below the prior week’s low (18,178) will be negative. Before this level, there were minor supports at Friday’s low and 18,333 and 20 DMA of 18,252. Since March last week, the Nifty has not closed below the prior week's low.

In the bull case scenario, if the Nifty closes above 18,620, it will test 18,965 in 8-9 trading sessions. The weekly 14-period RSI finally shifted its range into the last week of November 2022. But the negative divergence in daily RSI still persists. The MACD on a daily chart is about to give a bullish signal. The Nifty closed above the long resistance line drawn from March 2020 low. For the last four weeks, it has been oscillating around this line. After a strong bullish candle, the index needs a follow-through to continue the bullish strength. For next week, watch the 18,178-18,696 zone for a fresh breakout. Either side breakout will result in a strong move. Stay positive for now the strict risk management. Continue with select stock-specific views, which have had a high relative strength compared to the broader market.

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