Tricky market action on the cards

The market has become habituated to creating new lifetime highs. It closed at another new high. The Nifty ended at 13,981.95 with a 49.35 points gains. It failed to touch 14,000 psychological level, with just three points missed. Barring, banks and pharma all the sectors and broader market participated in today's positive strength. The cement stocks outperformed and led the rally. The overall market breadth is positive in favour of advances.

The market moved on an expected line, and the profit booking was at a higher level, mostly sideways trading during the day. The Nifty recouped its initial losses in the last hour of trading and was able to avoid a negative closing. As it closed nearer to the opening level, it formed an indecisive candle, Doji at another new lifetime high. As we mentioned yesterday, the market looks tired at a new lifetime high and the lack of momentum. A series of indecisive candles in recent times is indicating some inherently tricky market action.

A majority of market tops in the past occurred in the January-March quarter. Let us wait and watch, whether first quarter of the next calendar year will form a market top or will reverse the historical market behaviour. As we are trading at historical high price-earnings of over 38, with liquidity support, the price may enter into a consolidation mode to gauge the earnings improvement in the next quarter. Even the dollar flows into the market will play a vital role to sustain the rally. For now, the breakout level of 13,777 is an important support for the market for the short to medium term.

The Nifty is trading in the range 1,3985-13,860 zone for the last two days, showing that the consolidation is already placed in. Though the Nifty closed higher, the doji bar is not showing much bullish strength. On a lower time frame chart, the momentum is in negative territory. The India VIX further increased by 1.54 per cent indicating the volatility may grow on a Monthly expiry day. Maintain a strict stop loss at 13,860 and continue with the trend as long as it is in motion.

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