Nifty forms bull candles above key supports

The equities rallied to new highs after several attempts of breakout. NSE Nifty rallied by 520.15 points or 2.79 per cent last week. BSE Sensex also gained by 2.76 per cent and closed at a new high.

The last three days of massive move on Nifty with gaps show confidence in the trend. It has formed one of the strongest bull candles. Currently, the Nifty is well placed above the key supports. Recently, oscillation around 18,600 levels and 20DMA zone signaled some kind of uncomforted. At the new high, the index erased all the bearish signals. Before reaching the new high, the Nifty formed several bearish patterns and failed to get confirmations for their implications. It also negated the weekly head and shoulders pattern. Since the March low, the index has formed five flat bases and moved in a staircase fashion. As the 88 weeks of consolidation have broken out with broader market participation, we can consider this as a Stage-1 Base and transition into Stage-2. During this long consolidation base, the Nifty has corrected 18.35 per cent. The recent correction was limited to 10.90 per cent. As the recent correction was limited to less than 13 per cent, we can consider this as a Category-1 correction and a bear market correction. After a 147.6 per cent whopping rally from March 2020 low in 82 weeks took a breather for 88 weeks. Only for a brief period the index is below the 23.6 per cent retracement of the rally. With the latest breakout, the targets open for a 38.2 per cent extension of the April 2020- October 2021 rally, which is placed at 19,421pts.

Last week’s strong breakout has to be sustained above the 18,885-19,000 level to get confirmation. In any case, the Nifty closes below 18,600 level, which is a swing low; in the near term, the breakout will fail. Now the 20DMA support is placed at 18,738pts, and the 8EMA support is at 18,885pts.

If the upside extends, we see 19,250 and 19,421 levels. We also see some relative outperformance from the high-beta stocks. IT and Pharma, Auto, and BFSI stocks will be in the limelight. It is better to be stock-specific, while chasing the up move, keep taking out the profits on every rise and use the dips to buy.

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