NIFTY Index: Medium Term Technical Outlook

Two weeks ago in an article, I had indicated that the weekly charts were suggesting that the bullish trend on the NIFTY index would resume, as it appeared to be finding strong support at the middle Bollinger Band (20 week moving average), and momentum oscillators were suggesting a trend reversal.

Last week’s charts seemed to confirm this trend shift, with the stochastic momentum oscillator reversing, and a Doji Star candlestick formation taking place on the weekly charts. Having dipped below the 10,300 mark briefly, the bellwether index made a strong rebound and is currently trading above 10,600. This confirms the view that the market has found strong support at the middle Bollinger Band, and will likely resumes its uptrend over the next few weeks.

However, another interesting technical development seems to be manifesting at the moment – the start of the flattening of the Bollinger Band itself. Notice how the top and bottom channels of the band appear to be starting to curve around, forming the early stages of a flat shaped channel that appears will encapsulate the 10,000 and 11,000 levels, or thereabouts.

What this essentially means is that we may be at the cusp of a range bound phase in the markets in the medium term. If this trend does manifest (this will be confirmed in a few weeks when the index hits the top band again, we’ll most likely be locked into a narrow band of 10,000 to 11,000 for an extended period of time.

This seems to confirm the rational point of view; with the index trading at nearly 26 times earnings, corporate performance will likely have to play a catch-up game before the bullish trend resumes.

For now, investors are advised to use this rebound to rebalance their portfolios over the next few weeks. Asset allocation will play a critical role in the success of your portfolio this year. Do not blindly sit on 100 per cent equities and expect great returns. A balanced approach is key.