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  • Milan Vaishnav, CMT, MSTA

Some Consolidation Likely After A Strong Pullback; Moving Past 50-DMA Important For The NIFTY

In our previous technical note, we had cautioned against creating any shorts and resort to panic selling. The Tuesday’s session saw Markets rebound in a solid manner on expected lines to end the day on a positive note. The pullback came on the back on strong short covering which saw the NIFTY recover over 250-points from the lows of the day. The BankNIFTY saw spurt of over 550-points from the day’s low. The market breadth remained strong as the broader indexes performed even better. The benchmark index ended the day gaining 60.70 points (+0.58%).

The markets digested the election outcome and the RBI Governor’s resignation with less difficulty than expected. The election results seemed discounted a day earlier. We expect this technical pullback to continue. However, Tuesday’s pullback has halted at the pattern resistance level which also coincides with the 50-DMA which is presently at 10545. It would be important for the NIFTY to move past 10545 and trade above this level.

Wednesday is likely to see a flat to mildly positive start to the trade if we do not have any negative overnight news flow to deal with. The levels of 10590 and 10675 will act as immediate resistance area while supports come in at 10480 and 10410 zones.

The Relative Strength Index (RSI) on the Daily Chart is 45.5408 and it remains neutral and shows no divergence against the price. Daily MACD is bearish as it trades above its signal line.

A large white candle emerged on the Daily Charts. This formation can be interpreted in two ways. It is anEngulfing Bullish candle and can be interpreted as a potential trend reversal as it has emerged after decline. This candle can also be interpreted as a Piercing Line. During such formations, the price opens low, moves even lower then recovers and ends on a very strong note.

Despite the strong recovery, we continue to suggest treading the markets on a highly cautious note. NIFTY still has many overhead resistances to clear and remains vulnerable to some consolidation again at higher levels. Though we strongly recommend refraining from creating shorts, profits should be protected vigilantly at higher levels. Markets have not suffered any structural breach and therefore, all dips should be continued to be used in making modest purchase on selective note.

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (MTA, USA / CSTA, Canada / STA, UK)|(Research Analyst, SEBI Reg. No. INH000003341)