It’s time to be cautiously bullish

The Indian stock market witnessed two days of brisk trading after Assembly election results and RBI governor appointment. The negatives of Urjit Patel's resignation, and anti-BJP outcome in the states elections ignored by the market.

The benchmark indices up for four days during the week, Nifty up by 1.1 per cent and Sensex rose about 1.1 per cent. The broader market indices like Nifty Midcap index up by 3.2 per cent, Nifty Small cap index outperformed the broader market by 3.7 per cent.

The key indices were closed above the long and short-term moving averages, which indicates market is in good momentum. And all the sectors were participated in the last week's rally.

With the hope of new RBI governor's indications about easing of PCA norms, the PSU banks were in limelight, and the whole banking and financial services stocks outperformed all other sectors. Auto index performed well with 4.5 per cent rise last week after a very long period of sluggishness.

FIIs are net sellers last week and dumped Rs 2,929 cr worth of shares. Technically, Nifty closed at multiple resistances point. 10,805 level is also a crucial 78.6 per cent of recent fall. And there are at least two consecutive bearish Candlestick patterns, namely, Evening star and Hanging man, which indicates tiredness of rally of post RBI governor's appointment and state election results.

Unless Nifty clears the Thursday's high, it is difficult for it to move further up. If it can clear this immediate resistance the next important resistance placed at the recent high of 10,941, which is almost 50 per cent retracement of previous fall. Though there is no significant weakness in the broader market, it is time to be cautious as multiple resistances are placed in.

As one or two swing indicators are showing overbought situation, the market may witness some profit booking at a higher level. The trend strength indicator ADX is not showing any significant robustness in trend. This is another divergence, giving some early signs of tiredness.

The long-term indicator 200DMA is working as support since two days. The curvature of 50DMA is still down. The distribution day count stands at four on both major indices, if the market witnesses volatility, it will go down. With these technical factors, the uptrend is under pressure. With these pieces of evidence, it is time to be cautiously bullish in near future. (The Hans Research Team)