Trend Bullish, But Retracement On The Cards After 4 Straight New Highs

The NIFTY's cognitive dissonance continued unabated, with the index making fresh highs on four consecutive trading sessions last week, even as pundits cry 'slowdown' and global rating agencies cut forecasts. Some late profit-taking ensued as Fitch ratings further slashed India's GDP growth forecast to as low as 4.7 per cent. Friday's gains in the bellwether index were just 12 points as traders remained uncertain.

Some positive morale was provided by the news that the RBI would be aiming to bring down long term yields through a special open market operation known as a 'twist'. The government's pre-budget meetings, pointing to further economic stimulus, boosted collective sentiment further.

On the technical front, the index formed a Doji star pattern on the daily charts, indicating indecision as well as a potential short-term momentum reversal. However, the breakout above the upper Bollinger band on the daily charts definitely affirms that the bullish trend is here to stay. The same is affirmed by the rising channel on the weekly charts, as well as the firm and a decisive breakout above the channel where the index has been more or less stuck for the past 12+ months.

It's worth noting that the lion's share of recent gains has come through almost exclusively in a few frontline stocks. Those who been fence-sitting as they've been unable to reconcile the bullish momentum with all the negative news flow, need not fret. The future belongs to mid and small-cap stocks, which warrant a judicious and staggered exposure at present levels. For the NIFTY, a retracement is definitely in order, but 12,100 remains very strong support.

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