Post previous Friday's downtick, Nifty staged an up move of around 1.7 percent this week. This contrasting action indicates inability of index to provide follow-on moves. Despite recent consolidation at top of the trading band around 11,400, retracement on the downside has been short-lived. Index is gradually moving higher, witnessing shift of base on the upside, implying index' bullish undertone.
In recent downtick, Nifty defended its three-digit Gann number of 111(00) and immediately bounced back. In last few sessions, benchmark index has been toiling hard to clear the peak of March 2020 (Tall Red Bar). From here on, sustenance above 11,433 is essential for a move towards 11,570-11,600 zone.
Though, Nifty recorded weekly gains this week; however, Friday's high/low range was confined to mere 56 points, which is lowest daily range since January 13 (i.e. lowest daily range in past almost seven months). Presence of multiple narrow range candles around an important hurdle zone implies continuation of activity in broader markets while benchmark index is expected to consolidate.
Our customized breadth indicator (of all sector breadth) is around 95 percent, which means that stocks across sectors are in bullish swing, but it also implies overbought condition. So, caution needs to be applied. Extreme breadth level can be followed by phase of price or time correction. (i.e. it outlines strong momentum but also signs of possible exhaustion).
Historically, it is observed that breadth does not sustain at peak levels. Back in first two weeks of July, breadth cooled off sharply from 95 percent to 25 percent, but during that period Nifty consolidated and gradually moved higher. Cool-off in breadth provides a better opportunity for re-entering long positions.
BankNIfty outperformed Nifty in this week's trade. However, it is essential to close above on three-digit Gann number of 225(00) to continue recent revival. On point & figure (P&F) chart (0.25 percent*3), BankNifty is a probable triple top buy candidate, it is yet to trigger a double buy pattern but positive column reversal is seen.
Moreover, it has not yet violated mid-value of bullish anchor column seen in third week of June. Ratio chart of BankNifty/Nifty has seen a short-term breakout above down sloping trendline. Follow-up move on ratio above 1.97 would lead to outperformance of banks.
Nifty Media index was the biggest mover this week, rallying above 12 percent. Ratio chart of Nifty Media/Nifty index shows a breakout from a downtrending trendline and a move above 100-EMA, implying outperformance of media stocks against the benchmark index. Lately, sectors & stocks which had been a laggard have picked up momentum. Similarly, such pullback is also seen in Nifty Realty index.
Broader markets continue outperformance, so far in the month of August, Nifty Midcap 100 index has surged by over 9 percent. A move above 17,175 would result in a break above the peak of March 2020. Ratio of Midcap 100/Nifty has seen a sharp rally in the month of August and in the process; it broke above its 100-weekly MA. It is trading above the same for the first time since May 2018, indicating strength in the broader markets. With the benchmark index consolidating at the top, presence of overhead hurdles, multiple narrow range sessions, midcaps would continue to be in favour. Signs of concerns would emerge once Nifty falls & sustains below midpoint of three-digit Gann number of 11,350.
The author is Lead Technical Analyst - Institutional Equities at Yes Securities.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.