NIFTY Technical Outlook: Traders Are Advised Caution With Their Short Positional Trades

The index remained upbeat last week, hugging the 11,500 – although it corrected by 41 points in the last trading session of the week. Despite the current optimism, a number of concerns abound – the global trade war, stretched valuations both in terms of P/E and Market Cap to GDP, widening fiscal deficits and monetary tightening, to name a few.

Two signs are visible from last week’s charts. One, we’ve now had two relatively short bodied candlesticks – this implies indecision as bulls and bears remain firmly balanced. Coming after an extended rally (as is the case today), this could signal that bullish momentum is losing steam and a correction is due. Second, we witnessed a bearish crossover beginning to form in the stochastic momentum oscillator – after it remained in the overbought zone for an extended period of time. 

The current rally stat commenced at the end of March is now nearly 1,500 points strong, and we’re likely to see a retracement taking place in the coming weeks. The first strong support would lie at the 38.2% Fibonacci Retracement Level, which will also very nearly coincide with the 20-week moving average of roughly 10,800 – 10,900. Since the overall momentum has (against odds, in the absence of supporting fundamentals) turned moderately bullish after the NIFTY broke past its previous high, traders are advised caution with their short positional trades.

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