Uptrend likely to continue in markets

Equity market's buoyancy continued for the sixth consecutive week. During the last week, the benchmark index, Nifty, gained by 255.3 points or 1.9 per cent. It scaled to a fresh all-time high of 13,579 last week. The broader markets performed in tandem with the benchmark as Nifty Midcap-100 and Smallcap-100 gained one per cent and two per cent respectively. Financial and consumption sector outperformed while auto and metal sector took a breather. FIIs continues to buy the equities.

Nifty formed a long-legged doji with the last selling pressure. Out of trading sessions, it formed three doji candles, which indicates the indecisive behaviour is increasing. It traded in a narrower range during the week with increased volatility. Like in the recent past, several indecisive, bearish patterns failed to get the confirmation. Even many indicators overstretched and the negative divergences presence did not show any impact on the ongoing uptrend.

The 127.6 per cent retracement level of prior fall placed at 13,788, which 275 points away from now. We cannot forecast more than this level at a current juncture, as the benchmark index is looking for a much extended rally and is in an extreme overbought condition.

Nifty continuously closed above the upper Bollinger band on the weekly chart for the fifth consecutive week. It may lead to a brief consolidation before continuing the current trend. The support placed at 13,400 for next week. As Nifty is failing to close below the prior bar low for a bearish implication, it is better to be in the trend with strict stop loss and risk management.

On the indicator front, RSI (76.46) currently in an extreme overbought condition and has a hidden divergence. It made parallel high at 78.9, but the price is making higher highs.

Even on the weekly chart, RSI is at 73.91 and in an overbought condition. Interestingly, the MACD histogram is not rising and showing a severe negative divergence. MACD line also formed parallel highs. It is at a historically high level. In these conditions, the probability of consolidating between 13,600-13,350 is higher.

The 8 EMA is acting as key support for the index since November lows. Only below this level, Nifty may enter into counter-trend consolidation.

On a 75-minutes chart, Nifty is taking support at 20DMA several times. On this lower timeframe, the 13,380-350 is a support zone. As Nifty formed long-legged doji, a negative close on Monday will be the first sign of weakness.

We need to watch the Dollar index, as it is in an oversold condition. Any bounce will pause the FII flows into the domestic market. Currently, Nifty is trading at 37.16 Price-Earning ratio, which is never seen before. Even on the future earnings (FY22), the PE is in an extremely overvaluation zone of 27. In this scenario, either the price (index) should come down, or the earning should go up.

FMCG and energy sectors are showing an improvement, and many of the leading stocks in this are in good technical structure. The sector rotation and the funds' flow will be crucial drivers for the next week, as there are no negative triggers at present.

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