It’s better to stay cautious

The equities rallied on financial year ending, with short covering. The Nifty closed at the monthly opening. It gained by 279.05 points or 1.63 per cent and settled at 17359.75. All the sectors participated in today's rally. The Nifty IT was the top gainer with 2.45 per cent. Most of the sector indices ended with over one per cent gains. Nifty Energy and Banknifty are up by 1.92 per cent and 1.75 per cent. The other indices advanced by 0.43 per cent to 1.63 per cent. The India VIX is down by 5,08 per cent to 12.94 again. Market breadth improved as 1427 advances and 528 declines. About 128 stocks hit a new 52-week low, and 138 stocks traded in the upper circuit. Reliance, HDFC Bank, and ICICI Bank were the top trading counters today in terms of value.

Nifty has formed a strong bull candle after opening with a 130 point gap up. It sustained the gains all the day and closed near the day's high. It opened above the 20DMA and closed above the 50 per cent retracement levels (17314) of the prior downtrend, as we expected. The Nifty registered a ten-day 300 points breakout and met more than 50 per cent of the breakout's measured target. The cash volumes were less than the previous day.

Interestingly, on a 1.59 per cent advancing day, open interest was up by just 1.50, which shows long-build up was not at the expected level. Today's rally is mostly because of short-covering. The price is a long way from the previous swing high (17999), but the RSI has already closed above the prior major swing high. This divergence is not good for the euphoric move. On the upside, the 17482-557 zone is the confluence of resistances, where 200EMA, 200DMA, and 50DMA were placed. The 61.8 per cent retracement level is at 17314. and the 78.6 per cent retracement level is at 17592. And importantly, the downward channel resistance is around 17600. Clearing this resistance will be a challenging task for now. The Nifty already moved over 500 points from the 20th March low. The upside potential is just 250 points, it is better to stay cautious on both sides.

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