Markets on a high, but be selective on your picks

Benchmark indices closed higher in the last three sessions last week, in line with global markets that rose on hopes of the US-China arriving at an interim trade deal, and on certainty over the Brexit deal following Conservative Party's victory in the UK elections.

The Nifty gained 149.67 points or 1.25 per cent last week. The BSE Sensex rose by 1.4 per cent. The Nifty Midcap gained by 1.2 per cent and the Smallcap index fell by 0.80 per cent.

On the sectoral front, Nifty PSU Bank index rallied by 4.5 per cent and the metal index rose by 3.5 per cent. Auto index also gained by 3.4 per cent.

Technically, Nifty reclaimed 21DMA and retraced 78.6 per cent of the November 28 to December 11, fall. Last week's bearish trend engulfing failed to get the confirmation for the down move.

The volumes are consistently on the lower side for the last two weeks as also for the last 11 weeks. Even after Wednesday's last hour, recovery was followed by two gaps up and openings formed an inside bar last week. The marker is still in range for the last six weeks.

Last week's long tail, indicating buying support evolved from the lower levels. As suspected last week. the RSI took historical support at 46 levels and reached the resistance of the downward channel.

The 255-point bounce from the lower Bollinger Bank support turned the market into a bullish structure. The market is trading above the all short-term moving averages.

As long as Friday's gap is protected, be with a positive bias on the market. All the sectoral participation in the last week's bounce is a positive sign for the market.

The broad range of 11800-12150 for the last 31 sessions needs to break either side for bigger direction. The Bollinger bands are still in a narrow equidistance range showing the same range.

The directional indicator ADX and -DI are at the same value of 19.59. The +DI is above these ADX and -DI with last three days of price action. The MACD histogram also suggests that the momentum has picked up to a bullish side.

In any case, if the RSI breaks above 63 levels and the Nifty closes above the 12150 levels, the next level target is about 12300. On the downside, closing below 12000 will again resume downward move towards 11800.

Within this range scrip, the specific activity will be at centre stage. The disappointing core sectors growth and the rising inflation did not impact the market negatively. The Nifty is trading now at near to the historical highs again.

All the economic data points are not in a good shape to cheer. But, the markets completely de-coupled with the economic factors and rallying just on liquidity.

And this liquidity is not across the market, limited to only selective large and midcaps stocks. Be selective on the stocks that are in decent growth path.

(The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)