Nifty may rally another 1% before it consolidates

The NSE Nifty rallied 443.35 points or 2.48 percent during the last four trading sessions. The BSE Sensex is up by 2.1 percent. Broader market indices Nifty Midcap-100 and Smallcap-100 indices advanced by 3.4 per cent and 2.6 per cent, respectively. The Nifty Auto index was the top gainer with 6.5 per cent. Nifty FMCG, Realty, Metal, Bank Nifty and Fin Nifty were up by 3.5 per cent to 6 per cent. Only Nifty IT index down by 1.8 per cent. The advance-decline ratio is 1:1, shows, and the rally is not broad-based. FIIs sold Rs2516.89, and DII also sold Rs451.84 crore during the current month.

After two weeks of consolidation, Nifty has broken out of a 13-day Cup pattern with an impulse move. It has formed one of the strongest bullish bars on a weekly chart. Our short-term target of Nifty, 18350, projected in the last column, has met on Thursday, faster than expected. It opened with gap ups in the last two days moved higher. The highest close with the most bullish bar has given a strong signal. Since 22nd April bottom, the Nifty never closed below the previous week's low. As long as these higher top and higher bottoms continue, the index maintains an uptrend. In these conditions, cannot justify any short position or a cut in a portfolio. The Nifty has undergone two major consolidations in the last seven months. Even in these consolidation bases also the index has not breached the prior week's low.

The two gaps during the last week are crucial supports for the near term. Only a decline below these two gaps will create some weaker signs. The supports moved much higher. On a daily chart, the first area support is at 18,197 points. And the second gap area support is at 18098. On a weekly chart, the Nifty has formed a most bullish candle, as the low and high of the weekly are almost equal to open and close. The 20DMA support is at 17,775 points. The benchmark index has moved higher by over five per cent in the current upswing from 17,452 level.

The bearish and indecisive candles on a daily chart in the last nine sessions failed to get the confirmations. The daily MACD has given a fresh buy signal, and the histogram suggests a fresh bullish strength is a reality now. The RSI on daily and weekly charts is above 75 zone and near the previous high. The Nifty may rally another one percent before it consolidates once again. We can expect a decent consolidation after meeting the cup pattern breakout target, which is at 18444. Aim for this target at the beginning of next week.

The sharp up move during the last week with positive gaps also indicates the acceleration of upward momentum. As mentioned above, once the cup pattern target of 18444 meets, it will either consolidate or may continue the rally. The market is hoping this earnings season will give a fresh growth trajectory. Above 18444, the probable target is at 18600. We cannot project more than this level unless a fresh price pattern forms.

Multiple sectors are participating in the current rally is another positive factor. And a perfect sector rotation augurs well for the durability of the trend. Until recently, the laggard sectors, Banking, Metals, Infra and PSU stocks would lead the rally from now onwards. Earlier, I mentioned the banking resurgence. The broader market out performance is also keeping the market rally intact. Interestingly, 80 per cent of the Nifty 50 stocks are trading above the 50DMA. At the same time, with the overbought condition in all time frames, it is better to stay cautious if the aggressive profit may lead to a sharp decline. Avoid excess leveraged positions and shorts for at least next week.

(The author is a financial journalist and technical analyst)