Nifty closes with gains, shows signs of recovery

A dramatic recovery in the market led by a short squeeze closed at near day's high. The Nifty ended its losing streak with a significant gain of 400 points from the day's low. All the sectoral indices were closed with decent gains. Heavyweights like Reliance, HUL and Tata Steel helped the Nifty to recoup the losses.

After opening with over 100 point gap down, the Nifty finally closed with 186.15 points gain and settled at 14,744. The Energy index up by 3.16 per cent, FMCG gained by 2.43 per cent. Pharma, Infra and Midcap-100 indices advanced by over one per cent. BFSI sectors also gained almost a per cent. Once a deep negative market breadth turned positive at the end. In today's market 1,011 advances and 868 declines were recorded.

As we expected yesterday, the Nifty bounced after testing the gap area of 2nd February. This 14,336-469 gap zone is an important support for the next week. As long as it is protected, the Nifty will be tested in 14,750-14,850 zone. Above this resistance zone, it will resume the prior uptrend testing the highs. This technical bounce needs to sustain the positive momentum for at least above 15,000 levels. Today's four hundred points bounce is purely because of short covering. As a majority of index heavyweight trying to coming out of oversold condition. The beaten-down FMCG finally came to rescue of the benchmark index today.

The Nifty formed a piercing candlestick pattern today, which is a bullish pattern. It faced resistance at 50DMA. An open above the 50DMA (14,748) and close above it is a positive sign. The immediate targets are 14,843 and 14,959. On a weekly chart, it formed another bearish candle. The MACD has given a sell signal. This is the concern for positional trades.

We cannot forecast beyond 14,959 because the long-term charts are still not giving a bullish tone. Only in case of failing to close above today's high on Monday will be a weak sign for the market. Next March monthly derivative series is to expire. This could be a trigger to short covering.

(The author is a financial journalist, technical analyst, and family fund manager)