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Trade Setup: Sustaining above 100-DMA key for further short-covering rally in Nifty50


Tuesday’s market action remained much on the expected lines; Nifty50 surged higher and recouped much of its previous day’s loss to settle with gains on Tuesday. As mentioned in the previous technical note, the short-covering did take place as anticipated, and Nifty50 also paused its surge near the key resistance point of 100-DMA. The markets opened on a higher note and got only stronger as the day progressed. Nifty50 remained in an upward trajectory throughout the day as it kept marking incremental gains. The headline index did come off from its high point, but the bulk of the gains stayed protected. The benchmark index ended with a decent gain of 264.45 points (+1.56 per cent).

Tuesday’s session is important from many important technical angles. On one hand, it was expected that since Nifty50 has violated the 100-DMA which stands at 17195 on a closing basis, this level will act as resistance at the time of the pullback. It is important to note that the headline index has just halted its technical pullback just a notch below this level. On the other hand, the weekly options data shows considerable Put Writing at 17000 and 17200 levels. Also, there is significant Call unwinding between 17000 to 17500 levels. This market behavior shows that if some consolidation happens, then the zone of 17000-17200 may act as a major support area for the markets.

Volatility declined; India VIX came off again by 7.20 per cent to 18.6300. In all likelihood, markets may extend this pullback if there are no overnight negative cues to deal with. The levels of 17230 and 17300 will act as resistance while supports will come in at 17140 and 17050 levels.

The Relative Strength Index (RSI) on the daily chart is at 42.50; it is neutral and does not show any divergence against the price. The MACD is bearish and below the signal line.

Nifty50ETMarkets.com

A Bullish Harami pattern emerged on the candlestick chart. This happens as the white real body of the current candle is completely engulfed by the real body of the previous candle. Subject to final price confirmation, any such formation near a support area or after a decline hints at a potential reversal.
All in all, the opening of the markets, and its price behavior against the level of 100-DMA will be crucial to watch for. If Nifty50 moves past 100-DMA, which presently stands at 17195 and stays above that point, we may continue to see some more short-covering taking place. The market breadth needs to stay strong as this is important to sustain any rally in the markets. While continuing to stay selective and stock-specific, a cautiously positive approach is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)



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