Consolidation Towards 11,200 Levels Likely Followed By A Rally Past The 12K Mark

After staging a spectacular rally post the watershed tax cut announcement, the NIFTY underwent an expected consolidation last week. The rally continued on Monday before good sense prevailed and some much-needed profit booking took place. Monday's sharp rally was largely driven by high levels of short covering from rightfully panicked bears.

In the near term, one can expect the consolidation to continue for a few more trading sessions. The 800 point plus rally that we've witnessed over the past three weeks is likely to roll back between 23 and 38 percent, with 11,200 serving as a very strong immediate bottom. This level also marks the middle Bollinger Band or the 20 WMA mark. 

The undercurrent continues to be distinctly bullish, with no apparent signs of 'mandi' visible. We're likely to see another strong bullish uptick post the consolidation near the 11,200 mark. The next strong resistance is visible at around 12,125 and we're very likely to see the index at those levels over the next few weeks. The stochastic momentum oscillator indicates that we are currently around halfway through the present bullish wave that commenced around the 10,700 mark.

Bearish trading positions are strongly discouraged. We're now in a "buy on dips" market and corrections must be utilised to accumulate long positions in the index.

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