The Nifty has gone inside a narrow range, making intra day as well as swing trading difficult. Traders may well identify their own levels of this range, then decide to trade he Nifty when it comes out of these boundaries.
Mid cap and small cap stocks have been outperforming the Nifty. The mid+small cap rally should continue while he Nifty is undecided, If the Index finally breaks out on the upside, then we should see more fun in the mid+small segment, but IF the Nifty breaks down and moves into an intermediate downtrend, I do not think that mid cap rally will continue.
Test or Breakout ?
The Nifty did touch 52 week highs on Friday, Dec 11 before falling on the back of IIP numbers. Now, when price touches a previous top, there are two options: (1) It may be a test of resistance leading to a confirmation that the resistance holds OR (2) It can be a breakout leading to higher levels. Traders need to undertand the significance of Friday's price action, since it may have intermediate implications.