In a strong and positive session on Wednesday, the NIFTY had a short-covering fueled rally as it closed the day with decent gains. The markets saw a positive start to the day; it opened higher and maintained its gains through the entire day. The NIFTY did see some controlled profit-taking bouts in the mid-session; however, all these minor corrective moves got bought into and NIFTY kept marking incremental highs. In the last thirty minutes of the trade, the NIFTY got even stronger. The headline index closed with a net gain of 312.35 points (+1.87%).
From the technical perspective, there are two important things that will be crucial for Thursday. We have weekly options expiry coming up; it shows that the NIFTY has opened up some room for itself as the highest Call OI has shifted to 17500 but equally important to note that the second-highest OI stays at 17000 levels. Secondly, which the NIFTY has halted exactly at the 200-DMA which presently stands at 16988, the NIFTY March futures have shed over 14.16 lakh shares or 11.15% in the net Open Interest. This makes it amply clear that the rally on Wednesday was purely on the grounds of short covering and had no buying support from any angle.
Thursday is expected to see the level of 16990 and 17085 acting as potential resistance points. The supports come in at 16900 and 16810 levels.
The Relative Strength Index (RSI) on the daily chart is 52.52; it shows a mildly bearish divergence against the price. The daily MACD stays bullish and above the signal line.
The pattern analysis shows that while the NIFTY has tried to penetrate the lower edge trend line of the bearish descending triangle that it had violated, it has halted its up move very close to the 200-DMA which stands at 16988. This is potentially a strong resistance point for the NIFTY on a closing basis.
Thursday is also the last trading day of the week that is shortened by a trading holiday on Friday on the account of Holi. Further to this, the markets will also react to the Federal Reserve’s interest rate decision which is expected to raise the rate by at least 25 bps; it’s first since 2018. Since the rally has come in completely due to short covering as indicated by F&O data, it is unlikely to take out 200-DMA easily unless the markets see a significant thrust. Overall, it is recommended to stay away from creating positions ahead of the long weekend; the global markets do have some headwinds to face, and it would make more sense to keep exposures curtailed and limited. A highly cautious and selective approach is advised for the day.
This was first published by The Economic Times.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)
