The Nifty50 during the previous week traded with positive bias and has maintained higher high and higher low in the weekly chart. In the process, it registered a resolute breakout above the falling channel containing the entire corrective price action since mid-February 2018 signalling a reversal of the corrective trend and resumption of the positive momentum.

We expect the index to head towards 10,480 region which were the high of mid-March 2018. We expect focus will now shift to stock specific action as we enter into Q4 earning season; however, broader markets to extend relative outperformance while index remains in consolidation mode.

In the past two weeks, the index has rallied almost 475 points from the March low (9,952), leading the stochastic oscillator to trade in the overbought zone (currently at 90), indicating that the possibility of a breather at higher levels cannot be ruled out.

However, overall bias in the index remains positive hence, any breather towards 10,200 should be used as an incremental buying opportunity, being a confluence of:

a) The lower band of a rising channel containing the entire current pullback is placed at 10,270
b) The 38.2 percent retracement level of the recent rally (9,952 – 10,425) is placed at 10,250

c) As per change of polarity concept, the resistance trend line of the earlier falling channel would now act as support, is also placed around 10200 levels

Structurally, the key point to highlight during the current up move is that the current up move (473 points) is larger in magnitude compared to preceding two pullbacks (362 & 337 points), indicating the structural improvement in overall market structure.

The midcap and smallcap universe represents a larger section of the market and strong performance of this space reflects renewed investor confidence. As we are entering the Q4 earnings season, we believe the focus will shift to stock specific action.