After a long time, the bulls have finally been able to raise their heads and news flow is also supporting them. However, a large section of the market still seems to believe that we are in a bearish phase and the indices will once again slip southward after this upward correction. Well, given the fact that the macro-economic picture has still not improved, there is a probability that the market may once again slip southward. However, the macro-economic picture on the price charts shows we are more likely to form a higher bottom than break the low of 4,520 and slip further southward.

So the next time the index corrects, it would be worthwhile to buy into the correction instead of waiting for a new low. The reason? In the first phase of any recovery in the market, skepticism is always high and nobody is ready to believe that the worst is over. This is what can be seen in the market today with low rollovers in most stock futures.

As far as news flow is concerned, the most important news on the domestic front was a clear indication coming in from the Reserve Bank of India (RBI) regarding the interest rate curve. Though the cut in the cash reserve ratio (CRR) is only the first step in this direction, it does not appear that the central bank is in a hurry to cut interest rates any time soon. Though the Street was expecting no action this time around, the CRR cut came as a positive surprise. Now over a period of time, the expectation of a rate cut is going to be built in and we may see some more rally in interest rate-sensitive stocks. This is what is going to create trouble for the market a few months down the line.

Even the results from some of the companies that were expected to fare badly turned out to be better than what the Street had been estimating. This is what has helped some of the large-cap stocks to register a smart recovery. However there are a couple of results that have the potential of spoiling the mode of the market. But it is very unlikely that they would dent market sentiment in a way that would force the index to make a new low.

As for news flow from the US, as usual more positive news trickled in. But what the market needs to watch out for is the news coming in from Europe. Negotiations regarding the hit that the lenders to the Greece government will have to take can cause trouble in the market and we are already hearing fresh noise from rating agencies, which can trigger higher volatility in global equity markets.

But if the Indian market is able to outperform other emerging markets through this phase of volatility, we are likely to see a sharper rise than what is being expected at this point of time. Any outperformance in times of global turmoil is an indication of strength in the market. A similar trend was witnessed in the early part of 2007.

More than the mode of the oscillator, what is more important for the market at this point time is where Nifty is now placed. It is for the nth time that the index has come closer to the downward sloping trend line that can be drawn from the high that Nifty formed in 2010. This is the biggest hurdle Nifty is facing and it needs to cross. Probably, if Nifty manages to cross this trend line, it would trigger a further short squeeze. At the same time, Nifty has been able to close above the short-term trend line and is placed between these two trend lines.

Coming to technical charts, most short-term indicators are now placed in buy mode and some of them have reached the overbought territory. However, they have still not given any sell signal or shown any weakness. The moving average convergence divergence on daily charts is now placed in buy mode, as it continues to move upward in the positive territory.

On weekly charts, this indicator continues to be in buy mode. Though it is still placed in the negative territory, a buy signal has emerged after the indicators saw a positive divergence. This gives an indication that the upward trend may continue longer than any other bear market rally that the market had seen over the past couple of months.

The 14-day relative strength index (RSI) is in buy mode and it has reached the overbought territory. However, it has still not given any sell signal. As far as resistance is concerned, the first strong resistance for Nifty comes at 5,296 level after which another resistance would come at 5,351 level. A close above these two levels is going to give the bulls strong advantage in the medium term.

As far as support levels are concerned, the first strong support exits at 5,040 after which the short-term trend will provide support to Nifty at 4,950 level. Nifty should not break this level for the short-term trend to remain in the control of the bulls.

rajivnagpal@mydigitalfc.com