NIFTY - Technical Outlook

Last week, the bellwether NIFTY index finally reached the critical support level of 10,000 that I've been talking about for some time now. When you put this side by side with the fact that momentum-wise, we're deep into oversold territory on the weekly charts, it's safe to say that a technical bounce is on the cards at this stage.

Having said that, things are not looking too hunky-dory for the index at the moment. While is deceptively appeared to have taken support at the critical middle Bollinger Band or the 20 Week Moving Average 3 weeks back, it subsequently underwent a decisive breakdown past that level, which is an ominous sign.

Over the next few weeks, we're quite likely to see a volatile rebound of 400-500 points, till the NIFTY hits the middle band again. However, the downward slant of the band itself doesn't draw a pretty picture.

From a technical perspective, the next few weeks will be critical for a singular reason - we'll get a more or less decisive confirmation on the next "phase" of the equity markets. Currently, we're in a stage in the cycle where no trend is firmly established, but the next 4-5 weeks will put that to rest.
If the index faces stiff resistance at 10,400-10,500 levels, we're got reason to worry - as this could be indicative of a much longer bearish phase for the markets - one that may last anything from 12-15 months. On the other hand, if the NIFTY decisively and confidently breaks past 10,400 over the next few weeks, that would quell the fears of an extended bear phase, and indicate either a continuation of the bullish trend or the beginning of a range-bound phase for the markets.

Now, more than ever; disciplined investing and asset allocation will hold the key to investing success. Even aggressive investors should restrict their equity holdings to 50% or thereabouts at this stage, while creating a cushion with accrual funds or corporate bond funds with the rest of their money. Cautious or skittish investors would do well to avoid investing lump sums into the equity markets completely, while continuing their long-term SIP investments into equity MF's, which should be allowed to carry on uninterrupted to realise their true potential.