After the fireworks on election results day (Fri. May 16), Nifty is undergoing a bit of consolidation – which is good for the technical ‘health’ of the chart after a sharp rise from the support level of 6640.
Note that the upward ‘gap’ formed on May 13 has not been filled yet and should provide downside support to the index. Even if the ‘gap’ gets partly or fully filled, the up move should resume thereafter. Nifty upward target implications were explained in last week’s mid-week update.
Reportedly, retail investors have started becoming active again but they have been extra careful after bitter experiences at previous index tops in 2008 and 2010. They net sold worth nearly Rs 800 Crores on May 16. For the past 2 days, FIIs resorted to profit booking – their net sales touching Rs 370 Crores.
Daily technical indicators are still looking overbought. MACD, ROC and RSI are well inside their overbought zones. Slow stochastic has corrected overbought condition but remains in bullish zone.
Some more correction or consolidation is likely during the next 2-3 trading sessions. Announcement of names of NDA ministers may be the next trigger for the index. Expect a flood of FII inflows if the new government announces investment-friendly policies.