Book profits amid short covering

The equities rebounded on the weekend thanks to short covering. The Nifty gained by 160.15 points and closed at 21622.40. Only Banknifty, Private Bank indices were down by 0.03 per cent and 0.28 per cent. The metal, PSU Bank, Auto, Energy, Infra, and FMCG indices closed with over one per cent gain. The CPSE index advanced by 2.88 per cent. All other sector indices closed on a positive note. The India VIX declined by 1.37 per cent to 13.87. The market breadth was positive as 1690 advanced and 832 declined. About 174 stocks hit a new 52-week high, and 157 stocks traded in the upper circuit. The HDFC Bank, RVNL, IRFC, and OFSS were the top trading counters on Friday in terms of value.

As we expected on Thursday, Nifty has bounced and tested the 20DMA. After opening with a positive gap, it mostly traded in the tight range and formed a small body, a smaller shadow candle, which is a Doji candle. The rebound is because of the weekend and the short covering before the monthly expiry week. On a weekly time frame, it formed a bearish engulfing candle which is a topping formation. Weekly RSI declined sharply to 71 from 77.17 in just five sessions. As mentioned earlier, the index has reacted from the channel resistance lines. On Friday, the index reached over 38.2 per cent retracement level. To continue the positive bias, it must move above the 21643, and close above the 21670. Above this zone, the immediate resistance is at 21831. It all depends on the index heavyweight stocks earning on the weekend. If the earnings were disappointing, Nifty can test 21247, and 21050. For now, it is better to book profits in the rebound and be with more cash.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)