The Nifty 50 has been on a tremendous up trend in the past few weeks, and even registered an all-time high just this past Friday. But with this increased focus on the Indian markets and with prices up so much, investors and traders should be aware that the markets could be become stretched in the coming week.
The benchmark indices have been on a tear in the past few weeks, thanks to positive sentiment generated from the government’s efforts to spur economic growth, reduce corporate taxes, and a number of other reforms. This sentiment was further bolstered by strong earning season results, which saw the Nifty 50 Index breezing past its previous all-time high.
However, the markets could be primed for a bit of consolidation given that the Nifty 50 Index has now been overbought on the charts. From a technical perspective, if it is indeed overbought, traders should be wary of chasing higher prices as there could be an imminent risk of a pullback.
Traders should also take note of significant resistance around higher levels. The Nifty 50 Index could face a headwind near 12,300-12,350 and 12,400 levels, given the major resistance zone created by the 1-month and 21-month exponential moving averages. In addition, the index has also reached its level of overboughtness and if the buying stops around this area, the index could witness a correction.
On the other hand, a correction could also give traders an opportunity to take advantage of the same. This is because the Nifty 50 Index will then be referred to as oversold and a rally could then take a chance from these levels. Investors should also look at which sectors have seen an outperformance in the current market upmove and buy stocks from those sectors on dips.
In conclusion, investors should remember that the Nifty 50 Index is trading near its all-time high and this could mean that the markets may be a bit overextended. So traders should be cautious and avoid chasing higher prices in the short-term. However, active traders can use corrections to buy stocks from necessary sectors, as a rally could take place from either the oversold level.