Nifty strikes Deep but very overbought… expect some pullback otherwise be prepared for the blow-off rally
The Intermediate-Term Trend:
- Strong follow up to the ascending triangle breakout of the last week. Nifty moved up 3.55% for the week.
- Very Overbought – Weekly close outside all three Bollinger bands, no precedent in last 10 years.
- The EMAs are expanding nicely.
- Overbought at the beginning of the rally is positive, the trend is strong and will continue.
- Will have a pullback/sideways movement in the short term.
The Trend O Meter:
- Above 20 means trending.
- Strong trends are hard to reverse and finds lots of willing buyers on the pullback.
- The outperformance of Nifty MidCap & SmallCap signals the beginning of the rally in mid-February.
- On a six-month basis, Nifty MidCap & SmallCap index is underperforming the Nifty. Not a healthy sign of a sustainable bull market.
- Very recently, in the last four days, they have again started to underperform after a brief outperformance of one month.
- A small red flag but nothing serious yet.
Risk O Meter:
- VIX should fall with the rally which is not happening for the last few days.
- The VIX EMAs are turning around from just below 15.5 mark, the previous resistance.
- Some chinks in the armor – Breadth has started to diverge from the trend.