Charts Indicate Bullish Bias

The short-covering caused the market to bounce sharply from its near-oversold condition. NSE Nifty rallied by 445.75 points or 1.88 per cent. Only the Media index closed with a moderate loss of 0.11 per cent. The Auto index is the top gainer with 3.79 per cent. The IT, and Consumption indices gained by 2.2 per cent each. Many of the sectoral indices gained over 1.5 per cent. The India VIX is down by 5.31 per cent to 13.73. The market breadth is positive as 1,824 advances and 997 declines. About 66 stocks hit a new 52-week high, and 149 stocks traded in the upper circuit. Bajaj Finance, Reliance, Tanla, HDFC Bank, and Maruti were the top trading counters, in terms of value.

The bounced sharply by over 445.75 points and filled the 19th December gap area. It has broken out of a 10-day consolidation. As we expected, the positive divergence in RSI has resulted in a big bullish move. The Nifty rallied by 766.25 points or 3.27 per cent from the Tuesday low. The volumes were higher in the last three days. On a 1.55 per cent positive day, the open interest is down by 4.12 per cent, indicating the short-covering led the rally. The big positive technical developments are that the Nifty closed above the 20DMA, 200DMA and 50DMA. It also closed above the 38.2 per cent retracement level of the recent downward swing. At the same time, it closed above the 23.6 per cent retracement of the current downtrend.

These are the initial positive signals for the near term. The RSI is above 50, and the MACD is about to give a bullish signal. The index registered a big gain after the 22nd November. The beaten down Auto sector stocks and the IT stocks led to this bounce. Infosys and Reliance contribute almost 100 points to session’s gain. Sun Pharma and Britannia were the laggards. To continue this positive bias, the Nifty must sustain above psychological 24000 levels, which is also the 23.6 per cent retracement level (24045) of the last three days’ rally.

On the upside, the index may test 24324 in the near term, which is a 61.8 per cent retracement level of the recent downswing. In any case, the index closes below the 50DMA of 24141 will result in a consolidating move for the 3-5 days. As long as it protects this session’s low of 23751, stay with positive bias. If the 50DMA turns upside, the trend reversal will be confirmed. Next 2 -3 days move is critical to sustain the rally.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)