Weekly Outlook of Nifty from Sep 17th - Sep 21st

Last week, it was mentioned ‘technical chart confirms that Index has taken a support from the significant level of 5200. This means NIFTY index is once again getting ready to give a breakout above 5450. So, above 5450 the next target for NIFTY index is around 5630 level’. NIFTY Index hit 5587 and Nifty fut. placed a high of 5598 which is very close to the target of 5630. During the entire week Bulls were on rampage and NIFTY Index gave a massive 200+ points up move placing a new weekly high of 5587. One may term that this up-move has been triggered by international news and events but the technical charts and derivative data had already suggested strong signals prior to this news flow.

During the week market rallied across the globe on big news events from US markets. It is merrymaking time for Indian equity market despite suspect macroeconomic fundamentals. The sovereign rating downgrade fear is out of the way now. The loose monetary policy in western economies till 2015, some bold steps from the Government to open up FDI and shift into growth supportive monetary stance will act as boosters for extended rally.

There was a huge gap up opening in the Sensex and it needs to be filled quickly. However Technical indicators are bullish, but beginning to look overbought. When bullish sentiment is strong, an index or stock can remain overbought for long periods. Two of the indicators The RSI and MACD are showing negative divergences by touching lower tops while the Sensex moved higher.

If you enter for longs, keep a stop at the lower edge of the gap at about 17970. On the up side, there is a strong resistance zone between 19130 and 19800. Some consolidation and correction can be expected at or near the resistance zone before the Sensex can move up to test its Nov ‘10 top. On the downside, support can be expected from the uptrend line and the 50 day EMA near 17495.

The weekly chart of Nifty index has technically entered a bull market as the golden cross has happened. The uptrend from the Dec ‘11 bottom is now approaching a strong resistance zone between 5700 and 5950. Some correction or consolidation can be expected before the Nifty overcomes the resistance and tests its Nov ‘10 top.

Technical indicators are looking bullish. But the negative divergences are hinting at a correction.

Conclusion: Chart patterns of Sensex and Nifty are in up trends and have entered new bull markets. For the past few weeks, investors were suggested to buy fundamentally strong, low debt companies. There are several such companies which are still available at reasonable valuations. Start accumulating them at every dip.

RBI Governor has a tough task ahead, the monetary policy on Monday. However banking and other related indices have gone up on hopes that Diesel price hike will prompt RBI for rate cut. Nevertheless inflation in August was higher than expected which may wipe-out the hopes for any rate cut.

On technical chart, 5630 seems a minor hurdle now. If RBI on Monday comes up with any surprises for the market then it is useless to mention that bulls will go wild. However there are some negative divergences but I don’t think it may be difficult to take out immediate strong resistance at 5630 for extended rally into 5700-5740 and to turn the focus into 5893-5924.