Nifty trend for Thursday

Nifty, after having consolidated in a range of 13,400-13,600 over the last four trading sessions, finally broke its shackle and moved higher. At close, it ended at a fresh record closing high above the 13,650 mark.

The price action of the day formed a small-bodied bullish candle with a long lower shadow. Interestingly, the index closed above the five-day range with a gap-up. Technically, this pattern indicates an upside breakout from the consolidation range at 13,600. Along with this breakout, we have seen India VIX cooling off, which dropped by 0.74 per cent to 19.20. Furthermore, the market breadth was clearly in the favour of the advancers and the broader markets too outperformed the benchmark indices with Nifty Mid-cap and Small-cap surging 1.15 per cent and 1.01 per cent, respectively.

One interesting observation is that along with the breakout of the range, we have also witnessed the daily and the hourly Bollinger bands expanding while the upper Bollinger bands on both the timeframes are making room on the upside. Also, Nifty has seen long a build-up as we have seen an open interest addition of 6.33 per cent in the December series contract along with the price rise. In the near term, Nifty may scale towards the levels of 13,800, followed by 13,840. On the downside, support is seen around the zone of 13,550-13,600.

Currently, Nifty is trading at a 37.31 price-earnings ratio, which is almost touching four standard deviation levels. In spite of what appears to be an extended valuation and some warning signs from naysayers, the lack of clear sell signals on the charts with overall positive breadth implies that we should not fight the current trend but instead, keep a near-term ‘positive’ outlook for the indices intact. Sector rotation and funds’ flow will be crucial drivers for the next week as there are no negative triggers at present. However, at the same time, don’t get complacent and maintain strict stop-losses for all trading positions.