Weekly outlook from 13th feb-17th feb

In my previous weekly report I had mentioned NIFTY has formed a bullish reversal pattern on a technical chart and also mentioned that Nifty will face a resistance at 5440 before it continues further up moves. During the week Nifty faced the resistance exactly around 5440 level. On all 5 days of the week it tried to cross this 5440 mark but could not decisively sustain above. It made a high of 5451 once and at the end of the week also the high was at 5443. The bulls tried their level best to take the indices higher but were held by the bear due to poor IIP numbers and finally it ended in a tie.

After giving bullish reversal pattern Nifty is trying to consolidate in a range of 5300-5400. I consider this as a positive sign as of now as consolidation will help the market to gather strength for further up move. Heavy writing on Put options compared to Call options for February series supports this view.

Nifty on weekly charts has formed a ‘Doji’, indicating a pause and indecision in the current ongoing rally. Nevertheless a 'Doji' by itself does not signify too much, and one should wait for a bearish confirmation in the coming week.

However this was a much required pause, after 5 weeks of uptrend. The entire week Nifty Spot 5320 has not been breached which has now become an important low and aggressive Shorts can be opened if Nifty breaches and closes below this level. On hourly chart Nifty Spot is consolidating in the range of 5320-5428. A move beyond this range can be considered as a breakout trade.

The technical indicators are showing some signs of weakness which can be expected during a period of consolidation. The MACD is positive and above the signal line. The ROC has dropped below its 10 day MA and moving down. The RSI is still inside its overbought zone. The slow stochastic is also inside its overbought zone.

Conclusion: The chart patterns signal signs of uncertainty after a strong rally. That doesn't mean that a correction is going to happen but if it does, the rally may continue for a longer period. Keep an eye on 5320 and 5428 on Nifty Spot. Only a break and close below 5320 we can witness a short term correction.