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NIFTY — It’s not that crazy yet!

All the talk of the Indian markets correcting seems to be just people getting ahead of themselves. Sure the valuations are expensive and the market PE is high but a closer look into how we got here will give us clues of where we are and where we can go with this market.

Recurring : Patterns and sentiments repeats itself

1. NIFTY Daily Candlestick Chart

Looking at he NIFTY daily chart the two ellipses show recurrence of similar patterns. First in May 2016 Budget Day as the price went below the previous low of 6869 there was a confirmation that the trend was down and the sentiment surrounding the market was pessimistic. This can be reflected well in opinions of the analysts with quotes like these — “The Budget day event is likely to be poor and can lead to further cuts in the coming sessions.”

Second similar situation happened at the end of the year in late December when the index went below the previous low of 7916.40 and the sentiment among analyst was again pessimistic owing to the demonetization measure.

Both these scenarios gave way to a substantial rally in the index. Now this brings us to the breakout that lead to the all time highs on the index.

The breakout : Cup and handle

2. NIFTY Weekly Candlestick Chart

Above on the weekly NIFTY chart we can see cup and handle formation taking two years to from until breakout. Technically this pattern is a of a continuation nature meaning upon breakout it will lead to resumption of the previous trend which in this case was up. This pattern also helps you establish a target which comes up to 11138.

The significance of the what the larger time frame (weekly chart) is telling us can be put into perspective where the two ellipses indicate the recurring patterns and sentiments that were seen on the daily chart earlier. Here they form just the part of the larger pattern which has only just had a breakout.

There may well be a correction as the market never moves in a straight line rather in steps or more specifically by making higher highs and higher lows when in an uptrend, however this correction in all likelihood would be short and not deep. Looking that the weekly chart the breakout point would act as a strong support to any correction at 8996.

So to conclude, any corrections that may occur would not be deep and should be used as opportunity to buy because this market has got a long way to go before this up move would show some real signs of whaling. Below an updated daily chart summarizing everything follows.

3. NIFTY Daily Candlestick Chart showing the breakout