Markets heading to some pullback

The Dalal Street rallied on support from Pharma and IT sectors. NSE Nifty closed at 17,812.40 points with 90.10 points or 0.51 per cent gain. The Nifty Pharma index is the top gainer with 2.23 per cent. The IT index gained by 1.06 per cent. The Nifty FMCG, Energy, and PSU Bank indices declined by 0.28 to 0.64 per cent. All other sectoral indices advanced by 0.50 per cent on average. The India VIX is up by 2.48 per cent to 12.27. The advance-decline ratio is positive at 1.64. About 44 stocks hit a new 52-week high, and 110 stocks traded in the upper circuit. HDFC Bank, ICICI Bank, and Reliance were the top trading counters today in terms of value.

The Nifty continued to rally for the eighth day and closed above the prior swing high of 17,800 points. This 8-day counter-trend rally is one of the most impulsive in nature in recent history. An over 870 points rally is the highest after Oct-Nov 2022, but in the shortest period. It also closed above the Anchored VWAP resistance. As the swing is eight days old, expect some pullback. Some of the leading indicators have already reached the overbought condition. Importantly, today's 98 points move with lower volume gives some element of doubt. Even the Bank Nifty also gained on low volume support. Interestingly, the Open Interest is consistently declining since April 3. The PCR is at 1.39, which indicates the rally is at the matured stage. The Max Pain for tomorrow's weekly derivatives expiry is at 17,750 points. The weekly expiry will attract more volatility, and any spike will hurt the rally severely. Wednesday’s rally is primarily driven by the pharma sector. HDFC and ICICI Bank gains were the main reason for Bank Nifty’s positive closing. The broader market index Nifty 500, is still below the prior swing high. The upside potential is limited to an 18,000-18,100 zone maximum in the short term. All the impulsive rallies will attract pullbacks. Stay cautious on long positions with trailing stop loss. Avoid the fresh long positions.

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