The NIFTY remained above the critical support level of 11200 last week, spelling relief for the bulls after a strong correction the week before. The push and pull forces continued to drive the bipolar behaviour that we've come to associate with the domestic equity markets of late! While IIP numbers came in weak, underscoring the need for further rate cuts. On the other hand, resumption of trade talks between US and China, as well as optimism regarding a smooth Brexit, boosted sentiment. Overall, the NIFTY witnessed a healthy 1 percent correction intra week, although breadth was lacking.
On the technical front, the index continues to display strength. It found support at the 20 DMA mark, and also made a bullish reversal pattern on the weekly charts. The daily charts also showed signs of a momentum reversal, with the next strong resistance at around the 11,600 mark. The index also stayed within its rising channel, signaling medium term strength. The broader trend continues to be bullish.
The most likely scenario for the markets at this stage is a flattish, meandering rally rather than a tearaway bull market. Sentiment cues and news flows will continue to drive market direction, as the euphoria of the tax cut settles and rationality takes over. In the medium term, the chances of a rally towards the 12,125 mark continues to be strong, but it's not going to be a one way street! Investors may judiciously increase their equity allocations by 20-25 percent at these levels, but in a staggered manner.
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