In tune with overnight global cues and stable Asian markets, a strong pullback in the market continued for the second day in a row as Nifty opened positive, got stronger during the day, and ended with substantial gains. After the positive opening, the index stayed in an upward rising trajectory for the whole day while showing no signs of any corrective intent.
While continuing to maintain stable gains during the day, the market was not as volatile as expected. Nifty managed to maintain the levels near its high point and ended with a strong gain of 177.30 points or 1.6 per cent.
Nifty has gained over 400 points in the last two sessions. The up move has been on the basis of short covering as it has come with a decrease in net OI in Nifty futures. The index is now set to approach a crucial resistance point in the form of 50-DMA which presently stands at 11,302. The overnight pullbacks in US Dollar Index which is in the process of staging a technical rebound continues to remain a concern for the market in general. Volatility came off again as INDIA VIX dipped another 5.33 per cent to 19.5725, again at one of its lowest levels in recent times.
The market may get a little jittery once again on Tuesday. Nifty will find overhead resistance at 11,260 and 11,310, while the support will come in at 11,165 and 11,060 levels.
The Relative Strength Index (RSI) on the daily chart is 48.01; it remains neutral and does not show any divergence against price. The daily MACD is bearish and trades above its signal line. A rising window occurred on the candles, resulting out of a gap up and generally implies continuation of the trend. However, this will require confirmation on the next trading bar.
Pattern analysis shows the Nifty has bounced back from very near to the 200-DMA. On the upper side, since Nifty had violated the 50-DMA, this level may pose resistance on the way up now for the time being on a closing basis.
Going ahead, we may see some more short covering happening but at the same time, also see upsides staying capped at current levels. There are high probabilities that Nifty finds resistance at current and higher levels. So, in the event of any continued pullback, it is recommended to stay vigilant and protect profits at higher levels. A cautiously positive approach is advised for the day.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)