Has Nifty50 given breakout or this rally short-lived? Strategy and key levels to watch

Nifty Breakout Stocks, Strategy: Domestic equity markets have extended handsome gains in the previous two weeks following their global peers even as recession fear has gripped the major economies and the corporates. The NSE Nifty50 has closed above 17,000 in the six consecutive sessions with the first instance on July 29 - also the first since May 2. In the just concluded week, Nifty closed between the range of 17,300 and 17,400. Barring Thursday session, Nifty finished in the green on all the remaining days. 

The index has managed to close above 16,000 since July 15 and has rallied more than 10 percent from its July 1 closing of 15,752.05. The rally in the last one month has left the investors wondering if the Nifty has given a breakout or if this rally is short-lived given the rate hikes by the Fed, other central banks including the Reserve Bank of India and the deteriorating geopolitical scenario in the backdrop of Russia-Ukraine war and US House Speaker Nancy Pelosi's visit to Taiwan. In the rising scenario of supply-side pressures and the corporates cutting jobs amid scaling fear of recession, let's understand how Nifty could perform in the coming days and the levels one should watch.

Nifty Breakout Levels

Nifty50, which tracks the performance of bluechip companies, has climbed by 1,645.45 points or >10% since July 1. According to Manoj Dalmia, founder and director, Proficient Equities, Nifty gave a decisive breakout above 16,800 on July 28. It saw a good rally last week towards 17,500 which was a strong resistance level. 

He said that 16,800-16,850 will act as strong support for the Nifty and further rally is expected only if a decisive closing comes above 17,500. On August 4, Nifty made a high of 17,490.70 - the highest since May 2 when the index had finished at 17,069.10.

Nifty Breakout Strategy

Traders should watch the range of 17,200 and 17,500 on a closing basis, he said, adding that either side breakout will lead to a big move in Nifty. "A cautious stance would be ideal in the current scenario."

Ravi Singh, VP & Head of Research, Share India Securities, said that on the daily chart, according to the formation which the Nifty has made is indicating that it may trend towards high levels after witnessing a break out of the consolidation range. Nifty witnessed a bounce above its long-term EMAs on daily basis, indicating a surge in buying volumes around the support levels in the counter.

"On the momentum front, the 14-day RSI is well placed and supports the strength in the index. The index is heading north supporting the bullish sentiment," he said.

For the short to medium-term investors, it is ideal to enter at the current levels for targets of around 17,580-17,650. Any correction towards 17,380 can be utilized to average the positions while keeping the stop loss below 17,300 levels.