Weekly Outlook of Nifty from 21st Jan - 25th Jan

Last week it was mentioned that ‘However, profit booking is quite expected and I think one should bet on this correction as a possible opportunity to enter into good stocks. Nevertheless, the Option writers are gambling at 6100 strike price CE options and 5900 PE options indicating that a fall near 5900 and the 50 day EMA at 5860 can be a fruitful entry point targeting 6100. For the week, watch consolidation/correction at 5864/5910,  5980/6010 and further extension into 5820-6040”. What happened next Nifty spot surpassed 6040 and Nifty future failed to cross 6100 as the Option writers were heavily betting at 6100 strike price CE. Smart rally was seen from 5965 support zone to cross through immediate resistance at 6040 (high at 6083) before strong weekly close at 6064.

  

Finally the Sensex managed to breach above the resistance level of 19800, and is now trying to test the resistance of the upper border of the upward-sloping channel.

The index closed the week above the psychological level of 20000 for the first time in 2 years. Now, the question is whether it is a good time to buy?

 

I guess the answer is No. Because if one looks at recent highs, one can spot that the technical indicators confirmed negative divergences by touching lower tops while the index climbed higher. Nevertheless we have not witnessed any reversal patterns but this week the Sensex has ended with a ‘Doji’ candlestick pattern. So now can these two set of factors be enough for a possible turning point. The conclusion can be ‘YES’. So be cautious as the index is trading at 2 years high with lower volumes.

The quarterly results so far have been quite good mainly from RIL, TCS, and ITC. Bold steps of the Government to cut fuel subsidy to zero in 18 months and the WPI inflation data builds expectation of 25-50 bps rate cut on 29^th January. These factors brought optimism to FIIs to pump in more money. The bullish suggestion still remains firm with focus at 6181. The only risk factor at this stage is delay in rate cut from RBI but correction, if any should hold 5940-6000.

Conclusion: The Sensex and Nifty have reached at 2 year highs. Daily and weekly technical indicators are showing negative divergences. This is a good time to book some partial profits. NIFTY Index closing above the psychological level of ‘6000’ is surely a bullish sign on Technical Chart. However the Derivative data also confirms that 6200 is restricted on the upper side for this expiry. One can expect heavy profit booking around this level. Also the Sensex is trading quite close to its upper border of the upward sloping channel.