Fourth Consecutive Week Of Base Formation For Bellwether Index

The NIFTY remained volatile in a truncated trading week, eventually settling below the strategic 11,000 mark despite a very strong closing on Friday, due to easing concerns on the US- China trade war and some hope on future government measures to prop up the beleaguered auto sector.

On the technicals front, the index made a bullish reversal candle on Friday, as well as a Doji candle on the weekly charts. A Doji candle has traditionally been a harbinger of momentum reversal.

A quick glance at the weekly charts also clearly shows that the index has been forming a base now for the past 4-5 weeks, but has been unable to breakout until now. The index also closed decisively above the lower Bollinger Band level, another bullish sign. The stochastic oscillator also indicates a confirmation of a momentum reversal, with the blue line closing over the red line, and appearing to begin an up move from oversold levels. Monday’s fairly strong opening also reinforces this possibility.

Probabilities of a bear case remain muted at this stage, and short positions may carry above normal risks. Probable scenarios are an extended range bound phase resulting in a Bollinger squeeze over the next few weeks, or a bullish move towards 11,500 levels.

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