Nifty retraced fully, to stay upbeat till Budget

The stock market hit another new lifetime high after four days of brief consolidation. BSE Sensex is just 200 points away from 50,000 level. Nifty reclaimed 14,600. Today's rally was led by IT, Auto and PSU Banks. The Nifty closed at a new high of 14,644.70 with a 123.55 points gain. Barring FMCG, and PSE indices, all other indices closed higher. IT index went up by 2.21 per cent. Auto and PSU Bank indices advanced by 2.29 per cent and 2.08 per cent respectively. India VIX further increased by 5.88 per cent to 21.55 level. The broader indices of Nifty Midcap-100 was up by 1.04 per cent, and Smallcap-100 index rose by 0.59 per cent. As many as 1,010 stocks advanced, and 885 declined in today's market. As many as 92 stocks hit new 52 weeks' high in today's transactions.

Another new lifetime high - Bulls recovered all the losses in just two days and retraced 100 per cent of the fall. As we forecasted yesterday, the rally continued for the second day, and it hit the new high of 14,666. It also registered a new high closing of 14,630. For once the indicators reached an overbought condition. A day before the weekly expiry, the Nifty premium almost eroded. Interestingly, the last two days of the rally did not attract the volume. In fact, the volume in Nifty future declined for the last three days. Generally, the new highs on a low volume will not be sustainable. Moreover, the CLSA's study says we are at extreme highs based on the sentiment indicators. Nifty rallied 95 per cent or 7133.6 points from the March low. It is currently trading 28.70 per cent from the long-term moving average, 200DMA and 7.89 per cent from the 50DMA. These are extreme distance levels form the price.

All the major tops formed between 20 and 30 per cent from the 200DMA earlier in the last 30 years of Nifty history. Moreover, a majority of the tops made in the first January-March quarter. Currently, the Nifty retraced 145 per cent from the March low. And it also extended 127.6 per cent of previous major bottoms.

These technical evidences say, currently, the Nifty is at a very strong resistance level. As there are only seven days left for the general budget, stay cautious on the position size. The budget may act as a trigger for the market topping formation. For the next seven days, maintain a strict stop loss at prior day low. The support zone is placed at 14,517- 14,462. Only below these level market may turn negative.

(The author is a financial journalist, technical analyst, trainer, family fund manager)