Avoid shorts & focus on quality stocks

Equity benchmark indices sustained the winning streak for another week before the General budget. The NSE Nifty advanced by 443 points or 2.49 per cent. The BSE Sensex also gained by 2.5 per cent. The Nifty Midcap-100 index outperformed by 3.6 per cent. The Smallcap-100 is up by 1.7 per cent. The Nifty Realty is the top gainer with 4.9 per cent, and the PSU Bank index gained by 4.1 per cent. The Nifty Realty and FMCG indices closed marginally lower. Overall, the market breadth is positive as advances were outnumbered by declines for all the days. India VIX declined by 5.95 per cent and settled at 16.56. FIIs sold Rs 4002.94 crores during the last week. DIIs bought Rs 3629.03 crores.

Our target of 18134-211 zone was achieved on the expected line during the last week. The Nifty closed above the prior swing high. As of now, the index has surpassed two lower swing highs and confirmed the uptrend. Closed positively on all five days of the week shows the buying interest in the market. Even the Dragonfly Doji candle failed to get bearish confirmation. By forming a very strong bullish weekly candle, the index chart does not show any weakness on longer period charts. There is a clear acceleration of upward momentum and the consensus directional bias. On daily and weekly charts, there are no negative divergences or weaker signals are not available. The Nifty is inching up by taking support on 5EMA, and the move is like an impulsive one. The current upswing is 18 trading sessions old, except for three two-day pass. This is one of the longest ones since the March 2022 lows.

The 14-period daily RSI is at 69.22 is not showing any negative divergence. It has been sustaining above the 20 average since 22nd December. It is in a strong bullish zone. The weekly RSI is yet to move above its 20-period average though it is in a bullish zone. The weekly MACD is still below the signal line, but the histogram shows a decline in bearish momentum. At the same time, there is a decline in daily histogram too. The contradiction near an all-time high is normal. The Mansfield relative strength indicator is above the zero line, compared to Nifty-500, is a positive sign. During the last week, several sectors participated in the rally. On a daily Relative Rotation Graphs (RRG), BFSI, Auto indices entered the leading quadrant is a sign of gaining momentum in lagging sectors. But, on weekly charts, only Nifty IT sector is strongly gained momentum into the leading quadrant.

The other strong point is that 74 per cent of Nifty 500 stocks are trading above the 50EMA. During the last month, it was only 49 per cent of the stocks traded above 50EMA. This is an indication of durability and strength in an ongoing up move. In this scenario, as long as the price protects the prior day low on a closing basis, it is better to continue the bullish view till the general budget, which is just another ten trading sessions away.

For next week, the benchmark may trade strongly, and there are greater chances that the Nifty may touch near the previous high or form a new high before the budget. In any case, the Nifty trades fail to gather the upward momentum, it enters into consolidation, and the immediate support is placed at 18000. It is better to avoid shorts unless it breaks the key supports. Focus on quality stocks and declare earning growth on a selective basis.

(The author is a financial journalist and technical analyst)