Nifty expected to retrace sharply

The market is reluctant to fall. Hit another new lifetime high with IT and Auto stocks rallying over three per cent. Though the overall market breadth is not so extremely positive, the benchmark index was up by 1.48 per cent. The Nifty gained 209.90 points and closed at 14,347.25. The Metal and PSU banks were the laggards in today's market. The broader index Nifty-500 also was up by 1.36 per cent. As many as 267 stocks hit a new 52-week high, and only three stocks hit a new one-year low. The India VIX was at the flat at 20.64.

Wow! the Nifty touched another high after two days of squeezing behaviour. It almost touched our target of 14,375. It opened with a 130 gap and sustained the gains till the end of the day. It finally closed with a whopping 210 points gain. The frenzy buying in heavyweight stocks propelled the market to new highs. With this, every technical aspect turned bullish. The weakness in short term charts has vanished.

Though it is overstretched, it is not showing any weakness. The stop losses mentioned earlier have not triggered. They are rising further upside with the current move. The shortest possible averages turned upside after flattening for just one day. As mentioned earlier, it is overstretched and overextended market technically. As we are trading at 38.88 price-earnings ratios and above 4 price-book value ratio, which are fundamentally overvalued. It is the time to be cautious as the general budget is just 15 trading sessions away.

Though the indicators do not show any weakness signals, they all are in the extreme overbought condition. Any kind of retracement will be a sharper one. We may not get a chance to exit the existing positions. Try to take out some profits from the table.

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