Indicators Suggest Selling Pressure Exhaustion

The equities continued to rally for second successive day. The outperformance in the broader market continued. NSE Nifty gained by 207.40 points or 0.93 per cent and closed at 22,544.70 points. Only Realty index closed negative by 0.17 per cent. The Oil and Gas is the top gainer with 2.59 per cent. The Metal, Energy, Microcap indices were up by over two per cent. The PSE, and CPSE indices advanced by 1.97 per cent and, 1.81 per cent respectively. All other indices gained by 0.15 per cent to 1.47 per cent. The India VIX is up by 0.40 per cent to 13.72. The market breadth is extremely positive as 2,207 advances and 716 declines. About 53 stocks hit a new 52-week high, and 258 stocks traded in the upper circuit. HDFC Bank, BSE, Infosys, Castrol India, and Reliance were the top trading counters in terms of value. As we expected, the Nifty continued its recovery from the oversold condition. It filled the last Friday gap area. It decisively closed above the 8EMA resistance. The higher volume in the last four days shows that buying interest was generated at the lower levels. The RSI is back into the neutral zone from the oversold condition. The MACD line is about to crossover the signal for a bullish signal. The index is almost near the last week’s high.

Now, the target is open to 22,802, which is 20DMA. This may be tested in the next two days. On an hourly chart, the index closed above the moving average ribbon along with the MACD above the zero line, which is short-term positive. The extreme positive breadth and the broader market outperformance are indications that selling pressure was exhausted and value buying has started. As long as it trades above the 8EMA, be with positive bias. Above 20DMA, the index may also test the 50DMA or above 23000 levels. The sustaining of this V shape recovery depends on the continuation of the buying support. Avoid short positions and continue long positions with 8EMA as stop loss.

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