Short Term Downside Limited; Index Likely To See A Bullish Momentum Reversal From Current Levels

As predicted, the NIFTY continued its journey down south last week, before finding support at the lower Bollinger Band level and closing the week at 11,284 points, marginally above the lower Bollinger Band mark.

On the daily charts, the Index continued its bearish trend that commenced on 5th July. However, with the index now firmly oversold in both timeframes (weekly and daily), we’re unlikely to see any significant short-term downsides from current levels. In the short term, over the next few trading sessions, we’re likely to witness a weak-ish momentum reversal that will take the index closer to the 11,500 mark.

Interestingly, we now have the NIFTY’s Earnings Yield Spread with respect to the G Sec Yield trading at 2 standard deviations below the mean. This is a very narrow spread, indicative of bullish times ahead. With the index showing no immediate signs of cracking below the 11,000 mark, this may well be a good time to start building in an additional 15-25% allocation to equities, depending upon individual risk tolerance levels.

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