Nifty likely to see short-term bullish trend

With the easing of inflation fears and buoyant global markets, the domestic markets closed higher last week. The frontline index, Nifty, edged higher by 468.55 points or 2.98 per cent last week. The BSE Sensex also gained by 3 per cent. The broader market indices, Nifty Midcap-100 Smallcap-100 are up by 4 per cent and higher by 3 per cent respectively. All the sectoral indices advanced last week.

The PSU Bank is the top gainer with 6.6 per cent. The FMCG and Realty indices were up by 5.7 per cent and 5 per cent, respectively. Overall, the market breadth is positive during the week. FIIs scaled down their selling. So far, they have sold Rs4,543.12 crores in the last six trading sessions. The DIIs bought Rs5,221.04 crores.

As we expected last week, the 13th June gap was filled. The Nifty retraced 61.8 per cent of the prior downtrend. It also closed above the 50DMA. After a hesitant move last week, the Nifty has resumed its upward move with a sharply. In the last five trading sessions, three positive gap openings show the regained strength of the bulls.

As we stated last week, the counter-trend consolidation extends above the 61.9 per cent retracement level. The previous counter-trend rallies were limited to three to four weeks and ended at the 78.6 retracement levels. Interestingly, Nifty has tested the 100 per cent extension levels of the flag pattern in the current upward move. The Intermediate swing high is at 16,794, which is the 3rd June high.

This level also acted as support previously. In the most bull case scenario, the Nifty may extend its rally near to this level, which is almost 100 per cent retracement. As the 20DMA has entered into an uptrend, the short-term trend is bullish. In case the Nifty inches above the 16974, the intermediate trend will also become bullish. The Nifty is still 5.25 per cent away from the long-term trend indicator, 200 DMA. Only above this DMA, bear market is likely to end.

On the daily chart, the leading indicators are not showing any weakness. The RSI has crossed the 55 zone, which is a prior swing high and broken the channels. It may extend to 68 if the market conditions are positive. The weekly RSI is at the prior minor high, and a close above 47 will be positive. The daily MACD is reached near the zero line, and the histogram shows positive momentum. The +DMI moved above the -DMI, but the ADX is still looking southwards. Importantly, the relative momentum and relative strength ratio are still below 100, which mean that the Nifty is underperforming the broader market. Several sector indices are picking up their relative momentum, which is a positive sign. Apart from this, institutional selling eased a bit.

Friday's high of 16275 is a crucial immediate resistance for next week. Above this, 16449 is another resistance. We cannot foresee more than this for next week. We will get a clear directional view in the first two days of next week. On the downside, a close below the 16157 - 100 is the critical support zone. The 50DMA is placed at 16101.

On a 75-minute chart, the MACD shows an overbought condition and a decline in momentum. Even the RSI is in an overbought condition. We need to observe the retracement behaviour on the downside. The short opportunities will come only below the 16157. Otherwise, it's better to be with a positively cautious strategy.

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