In the last two months, the Nifty 50 index went up a lot, making investors happy and causing trouble for those who bet on it going down. The market grew by 11.58%, which was bad news for the bears. Especially in November and December 2023, the rising prices hit the bears hard, showing just how wrong they were.
Nifty Weekly Chart with RSI >70 levels
Nifty weekly trend has been continuing its bull run for the 34th week with RSI levels above 70 indicating that momentum in the markets had geared up. Since 1990 Nifty 50 index RSI had crossed above 70+ levels for about 53 times on the weekly charts
What happened to Nifty After RSI Crossed above 70+ levels?
Here’s a simple table showing what happens to stock prices after the RSI goes higher than 70 on weekly charts. It looks at the changes in prices for the next one, two, three, and four weeks. What’s interesting is that stock prices tend to go up more often during these times, according to the weekly RSI.
Nifty Bull/Bear Probability Summary Table Based on Historical Returns where RSI Crossed above 70 on Weekly Timeframe
The table indicates the probabilities of a bull or bear market in the NIFTY index following occasions when the Relative Strength Index (RSI) crossed above 70, which is often considered an overbought signal in technical analysis.
Here’s the interpretation for each timeframe:
- Next 1 Week: There is a 64.15% probability of the market entering a bull phase, which suggests that in the week following an RSI signal above 70, the market is more likely to experience positive returns. Conversely, there is a 35.85% probability of a bear market, indicating a lesser chance of negative returns in the immediate week.
- Next 2 Weeks: The probabilities are closer, with a 52.83% chance of a bull market and a 47.17% chance of a bear market. This implies that two weeks after the RSI crosses 70, the market’s direction is less certain compared to the immediate week, with almost an equal likelihood of positive or negative returns.
- Next 3 Weeks: The likelihood of a bull market increases slightly to 60.38%, suggesting that the market tends to recover or continue its positive trend three weeks after the RSI crosses 70. The probability of a bear market is 39.62%, indicating a still significant but lesser likelihood of negative returns.
- Next 4 Weeks: The probabilities for the fourth week are identical to the first week, with a 64.15% probability of a bull market and a 35.85% chance of a bear market. This might suggest that any bearish trends in the second and third weeks are often short-lived, and the market tends to return to a bullish state by the fourth week.
Nifty PE Ratio
The PE ratio is a measure that compares the price of a stock (or an index) to its earnings per share (EPS), giving investors an idea of the value being paid for each unit of earnings.
The current PE Ratio of Nifty stands at 22.81 which is not in the bubble territory as it is barely hanging above the medium levels. if the PE ratio is within 1-2 standard deviations of the median, it might suggest a more normally valued market.
The market is showing strong momentum and, from a medium-term view, it’s a good time to buy on any small dips in prices. I expect that the market will likely end the month of January 2024 on a positive note. Any slight drops in price could be a good opportunity for short-term investments with the expectation of quick gains.
