Nifty Technical Outlook: Investors Are Advised To Have No More Than 40%-50% Allocation To Equities

After registering five consecutive weeks of upward movement, the NIFTY consolidated last week after moving past the middle Bollinger band (20 week moving average) three weeks ago.

Having avoided a bearish crossover two weeks ago, the stochastic oscillator is now entering overbought levels, signifying that its likely that the bulls will relinquish control to the bears once again, sooner than later.

I've long been advising investors on the merits of maintaining a judicious asset allocation at this stage, rather than blindly investing all their moneys into equities. Consider this: over the past six months, we've really not seen any point to point growth in the index whatsoever. At the end of October '17, the NIFTY was trading at 10,461. As I write this, we're at 10,645! This is precisely the extended time correction that I've been harping on about.

In the absence of any key drivers OR destroyers of market momentum, and with the uncertainties of the 2019 elections looming large, this is exactly what I expect to continue happening. In other words, it'll be a (pleasant) surprise if the NIFTY breaks out of this narrow trading band of 10,000 to 11,000 anytime in the next 12 months. This means opportunities for positional traders; and consternation for buy and hold investors!

Notice how the trajectory of the Bollinger Band is suggestive of this too. The band has relinquished the upward sloping trajectory it maintained steadfastly throughout 2017, in favour of a flatter one.

Investors are advised to have no more than 40% to 50% allocation to equities at this stage, with the rest going towards a mix of corporate bond funds and duration funds. SIP investors can continue their long term investments - if anything, the volatility will stand them in good stead.