After one leg of lower high lower low formation, the benchmark index Nifty confirmed the failure of the bearish setup on October 6 and formed a higher high above 11,600 levels.

On October 7, Nifty witnessed a sharp rally intraday after witnessing a flat to negative opening and closed the day at 11,738.85 with a gain of 76 points, forming a bullish candle which has shown a positive thrust on the daily chart, hinting at strong bullish momentum ahead.

The current reversal is quick but is a very narrow rally. The majority of sectoral indices are contributing to the move and we feel IT, pharma, and auto could outshine others in the near future.

Due to the recent breakout in Nifty, its key technical indicators are in favour of bulls, hence our bullish view will remain intact, but due to a stellar rally, profit-booking at the current stage cannot be ruled out before reaching the 12,000 mark.

The index is nicely poised above its 20, 50, 100-day exponential moving averages (EMA) on a daily interval which is positive for the Indian bourses.

In case Nifty violates 11,550 – 11,500 levels, higher-level profit-booking will take place, where the index will find support around its trendline, placed around the 11,400-mark.