Squeeze Formation In Progress, Dramatic Movement On The Cards In A Few Weeks

The NIFTY continued its tightly bound flip flop around the pivotal 12k mark, making a very bullish close on Friday, ending barely 72 points shy of its lifetime high. Wednesday's trading session was particularly remarkable, with the bellwether index surging spectacularly in the last fifteen minutes of trading, recovering as much as 78 points from the day's low to close in the green. Predictably, the index made a sharp rebound from the lower Bollinger band, which had formed around the 11,850 marks.

NBFCs and HFCs enjoyed a buoyant week as news came in implying that relaxations could be provided on the partial guarantee scheme in which the credit rating requirement of ‘AA’ could be brought down to ‘BBB'.

Last week also saw a drop of 2.49 per cent in the India VIX, signalling that the market dies not to anticipate a lot of volatility going forward. The same view is corroborated by the fact that maximum put and call open interest is at the same level - not surprisingly, at 12,000. 

On the daily charts, we're definitely witnessing a classic squeeze pattern playing out, with the upper and lower channels narrowing quite dramatically. On the weekly charts, we've already seen strong resistance at the upper band, and the 20 WMA channel is slanting up. The prognosis here is the continuation of a tightly locked movement in the 11900-12100 band, followed by a very large breakout or breakdown sometime in the next few weeks. Unfortunately, predicting the direction of the market movement post a squeeze is nigh impossible, but if recent sentiments are to be considered, it'll probably be a bullish one.

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