Bullish trend likely to continue

Indian stock markets closed at a lifetime high thanks to clear mandate in the general elections.

The week began with a massive gap up on Monday with exit poll predictions. Finally, Nifty gained 436.95 points or 3.83 per cent on a net basis during the last five trading sessions.

For the first time, Nifty crossed 12,000 mark on election results day. During the week, barring Nifty IT index which lost 1.7 per cent closed with decent gains.

Nifty PSU Bank Index gained 12.8 per cent, Realty 10.9 per cent and BankNifty 6 per cent. With this whopping gains, the investors' wealth (BSE market capitalisation) increased by over Rs 6 lakh crore during the week.

As we forecasted earlier, Nifty touched 12,000 mark in an eventful week.

The market action was a repeat of 2014, 16th May (election results). However, Nifty was unable to sustain at the higher levels and closed negatively on a positive day.

Barring the Thursday's price action, Nifty traded mostly 11600-11850 range with high volatility.

With 3.8 per cent gain, Nifty reclaimed 50dma on Monday. Nifty retraced over 38.2 per cent in recent swing 11108-12041 on a lifetime high day itself.

This price action indicates further upside is limited for now. As per our earlier forecast, Nifty may face strong resistance at 12200-12300 zone.

It requires additional fundamental strengths to move to new highs from here. As long as Nifty sustains above the 11820 levels, it will continue to be in a positive bias.

Despite big gains, the negative divergences on a weekly and daily chart still persist in RSI.

Though the indicators are suggesting the momentum to continue, any kind of profit booking will create a frenzy in the market as next week will also be eventful thanks to RBI monetary policy.

The Stochastic oscillator which in the overbought condition is giving some negative thoughts on market movement.

As all other indicators are suggesting the bullish momentum and there is weakness visible in the market, traders are advised to keep their long positions with trailing stop loss.

Nifty is in clear uptrend, but under pressure at the higher levels. Nifty faced resistance at upward channel resistance on Thursday and fell.

The market may move within this upward channel with up and downswing with almost 800 points range. This is going to be more volatile than earlier swings.

As Nifty Price-Earnings ratio (PE) is, at 29.44, at historical highs, until earnings show considerable improvements, this PE is not good for aggressive investments.

For trading, next week, 11820 will act as critical support and Nifty may move in the range of 12,000-11,575. Apply strict money and risk management rules to safeguard the capital.

(The author is a financial journalist and technical analyst. He

can be reached at [email protected])