Benchmark indices went through a corrective phase

In the last week, the benchmark indices went through a corrective phase as the momentum readings were overbought when the Nifty approached the 20000 mark. However, the broader markets have not shown any signs of divergence and hence, the primary trend remains bullish.

Nifty has immediate support at 19600 as this level has acted as support for the last 3-4 sessions and also the put writers of this weekly series have built up positions at this strike. On the higher side, the immediate resistance is seen in the range of 19800-19850 followed by the 20000 mark. In the index futures segment, FIIs have about 54 percent of the positions on the long side while the Client section has over 52 percent of positions on the long side. The data is marginally positive and thus, the formation of fresh positions will lead to the next directional move. As per the open interest data, 19600 will be seen as the immediate support for this week, and only if the Nifty breaks that, then the next support range is placed in the 19550-19450 range. Our market has been witnessing significant momentum for the last four months and the midcaps and the small-cap names have been rallying without any meaningful corrective phase. This indicates signs of a strong bull market which we expect to continue ahead. However, within this uptrend, there are some signs of caution which traders should not be ignorant of. The Midcap and the small-cap index are in the overbought zone and hence, there could be some in-between correction in the near term. Thus, we advise traders to look for buying opportunities on declines rather than chasing stocks at higher levels.

From a trading perspective, it would be prudent for traders to look for stock-specific opportunities and look for momentum stocks where price up moves are supported by higher volumes. It is also advisable to look for timely profit booking as well as the midcap and smallcap indices have entered the highly overbought zone.