Any impulsive move may retest the breakout level

The benchmark index scaled a new high with an impulsive move during the last week. The NSE Nifty gained by 475.15 points or 3.01 per cent and settled at 16238.2 points. The BSE Sensex is up by 3.2 per cent. The broader market underperformed as the Midcap-100 up by 0.5 per cent, and Small-cap-100 index is down by 0.9 per cent. The BFSI sector outperformed as the Bank Nifty up by 3.54 per cent, and Fin Nifty advanced by 4.05 per cent.

The IT index closed at a new high with a 2.7 per cent gain. Pharma and FMCG indices consolidated further with moderate gains. The Metal index is up by 1.23 per cent. Overall, market breadth is negative though the market scaled a new high with a big move. The institutional activity has picked up with Rs2,616.04 crore buying by FIIs and Rs896.84 crore by DIIs. The India VIX is almost at last week's level 12.6075.

After two months of consolidation, the NSE Nifty finally gave a breakout with an impulsive move. It surpassed the critical resistance 15915-65 zone. During the last week, the Nifty witnesses four successive gap-up openings showing the power of tight consolidation range breakout. As discussed earlier, the tight consolidation or flat base breakout is impulsive and has proven the history this time. The breakout target met in a week. The consolidation of 256 points has given 447 points above the breakout. This shows the strength in the breakout. As long as it trades above the 15,962 level, we can be with positive bias. As we mentioned earlier, the 161.8 per cent retracement level of the prior decline between February and May. The target also met in just one bar. With this impulsive move, the Nifty may enter into consolidation before taking further highs. Friday's bearish engulfing bar indicates that.

The Nifty formed a bearish engulfing candle on a Doji at a lifetime high, meeting Steve Nison's Doji reversal rule. Nifty moved above the upper Bollinger band with a breakout candle for three days. On the fourth day, on Friday, the index closed on upper Bollinger bands. This is also meeting John Bollinger's Volatility mean reversion rule. Any impulsive move may retest the breakout level. The RSI reacting from the resistance zone is given a caution sign. The consolidation limit is to the next two to five days. During the next, the price movement will be very interesting to observe. Any similar impulse move on the downside will give a reversal sign.

A bounce after the retest will be in a similar manner. Only in case of closing below the 20DMA (15879) and 50DMA (15788) will be a negative for the market. The retest of the 15962-15986 zone is critical, as closing below this zone very negative sign. Bouncing from this zone and closing above 16,100 will give a fresh long entry, with breakout point 15,962 as a stop loss. This bounce target is placed at 16,350 and 16,668 points. We can't forecast above this level at the current juncture.

(The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)