Upward trajectory amid possible profit booking

The Indian stock market registered the highest weekly closing in its history. It hit a new 52-week high and continued to be positive for the fourth week. NSE Nifty gained 252.55 points or 1.28 per cent last week. BSE Sensex is up by 1.4 per cent. The broader indices underperformed last week. The Nifty Midcap-100 and Smallcap-100 indices declined by 1.0 per cent and 0.5 per cent, respectively. The PSU Bank index continued to be the highest gainer by 6.5 per cent. Nifty IT and Financial services indices advanced by 3.1 per cent and 2.2 per cent, respectively. The Nifty Pharma and Auto indices declined by 3 per cent and 1.7 per cent, respectively. The market breadth is positive in the truncated week. FIIs supported the market. They bought Rs12,489.74 crore in the last seven trading sessions in this month. The DIIs sold Rs5,644.87 crore worth of shares.

The previous week's marginal breakout was confirmed with a decisive breakout last week. It formed a strong bullish candle above the prior swing highs. The Nifty closed at a weekly high with the highest volume in the last two months. As the volume validates this breakout, it is better to avoid any kind of bearish view for now. Currently, it is 4.19 per cent above the 10 weekly average (17611) and 7.88 per cent above the 40-weekly average (17009). The Nifty rallied 1602 points or 9.57 per cent from the 30th September low. After breaking out of a bullish flag pattern on October 24, the Nifty extended and achieved more than 50 per cent of the pattern target. The 61.8 per cent extension level is at 18548. With all probabilities, this is the next week's target. We need to watch the Nifty behaviour closely at this level. If the Nifty adds distribution days from here, the currently confirmed uptrend will be under pressure. As per the Dow theory, the index has broken below the swing low for a confirmed downtrend, which is almost ten per cent below the current level.

The Nifty ended its six days of indecisive and bearish moves by closing above the previous high. As the current swing is six weeks old, it may attract profit booking anytime from now. Just on Friday, the index erased all the last week's losses and sustained the momentum. Even when the indecisive and wavering moving, the Nifty has not shown any weaker signs, which later proved our stance was right with a strong close. The recent dips failed to get bearish confirmations.

Technically, the Nifty has reversed the 13-month-long bearish or counter-trend. Historically, a majority of the bearish phases ended in 13 months. As long as the 17611 is protected, the Nifty will be positive in the medium term. The recent low of 17959 will act as short-term support. Only below these levels, the market will turn weak. Otherwise, look for a target zone of 18545 and 19421.

Interestingly, the leading indicator RSI has shifted its range into the strong bullish zone. For the last one year, the indicator has been below the 60 zone. This range shift is a strong bullish signal for the market. At the same time, in all time frames, the RSI is above the 60 zone, which is another bullish sign. Its Relative Strength line is above its 50-week average and rising. Currently, the Nifty is near the leading quadrant, as the RRG RS is at 100.60, and Momentum is at 99.97 on a daily time frame.

In the above strong technical parameters, it is better to avoid predicting the future direction. It entered uncharted territory on a weekly closing basis. The RSI shifted the range into the strong bullish zone. The best way from now is to monitor the distribution days. The 17611 is the key level to be bearish. Otherwise, be cautiously positive from now.

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