Nifty Technical Outlook This Week: Investors Are Advised To De-risk Their Portfolios

As predicted in my last Technical Outlook notes here and here, the NIFTY took support at the 10,000 mark and trended up for the second consecutive week, gaining roughly 350 points or 3.5% over the past fortnight.

We're now nearing the mid-Bollinger Band or the 20-Week Moving Average which, at 10,400 odd, will serve as an acid test for the markets.

The bellwether index, which decisively broke down past the middle Bollinger band for the first time in 18 months a month ago, is now in what we can call a 'zone of uncertainty'; a phase during which bulls and bears will tussle with each other to establish the next medium-term trend.

While we're still in the oversold territory from the momentum perspective, near term drivers of positive momentum seem to be missing right now.

From the perspective of rational analysis, the trouble is lack of adequate earnings growth. The NIFTY's EPS (Earnings per Share), which was Rs. 373 three years back, is Rs. 402 today - a poor growth rate of 2.5% per annum, compounded. In the same timeframe, the index has grown at nearly 6% per annum.

Whether or not another wave of liquidity will take the index past the 10,400 mark is yet to be seen. Prima facie, it seems a lot more likely that the bears will jump into the game at those levels, offering stiff resistance to stock prices at that point.

Investors are advised to de-risk their portfolios and glide towards their optimal asset allocation basis their risk profile, in a systematic and disciplined manner over the next 3 months. The days of being 100% into equities are over, for now.