Gemstone Equity Research & Advisory Services

Outlook For Friday: Short Covering Lifts NIFTY; Closing Above This Level Crucial For Extension Of Move

The markets had an extremely buoyant session as the headline index NIFTY went on to end the day with robust gains. Defying global weakness, the Indian equities opened on a firm note. After trading flat initially, the Index saw itself rising while staying in a secularly upward trend. It continued to remain in an upward rising channel throughout the day. The maximum Call OI that was concentrated at 10000 levels shifted to 10100 and this ensured the NIFTY settling just below that level. While ending near its high point, the benchmark index closed with a net gain of 210.50 points (+2.13%).

The markets have halted just a notch below the 100-DMA level which presently stands at 10112. Despite the visible strength in the earlier session, any further up move cannot be taken for granted unless the NIFTY closes above this level convincingly. If this happens, we may see some another round on risk-on rally; however, if the NIFTY fails to move past the 100-DMA, we will see some consolidation happening again.

Friday is likely to see the levels of 10110 and 10195 acting as strong resistance points. The supports come in at 9985 and 9910 levels.
The Relative Strength Index (RSI) on the daily chart is 61.07; it remains neutral and does not show any divergence against the price. The daily MACD is bearish as it trades below its signal line. A clean white body shows the secular direction of the trend which was on the upside.
The pattern analysis shows the NIFTY moving precisely in the upward rising channel. This rising channel was formed after the rising wedge formation got resolved as a continuation pattern.
The markets will see fresh round of up move if the NIFTY manages to close above the 100-DMA convincingly. It should be noted that this condition is prerequisite if the Index has to make any strong up moves. The markets are presently placed at a critical juncture; failure to move past the 100-DMA will push the markets into consolidation again. We recommend not chasing the moves blindly as the previous move was expiry-led and fueled by heavy short-covering. This was evident as the surge has come with a decline in the net Open Interest of NIFTY futures of the current series. A continued cautious view is advised for the day.
Milan Vaishnav, CMT, MSTA
Consulting Technical   Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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