Stay away from short positions
Nifty to continue rally attempt as 15739 level is protected; Doji bullish confirmation will have a positive impact on the next 3 - 5 days
image for illustrative purpose
The Indian market rallied sharply and closed at four-day high. The Nifty rose by a whopping 417 points or 2.63 per cent and settled at 16259.30. All the sectoral indices closed higher. The Nifty Metal index led the rally with a 6.86 per cent gain. The Energy, Media and Smallcap-100 indices up by over three per cent. The other sector indices gained one to three per cent. The VIX cooled off by 7.77 per cent. Overall, market breadth is extremely positive as 1791 advances and 299 declines. 41 stocks hit a new 52 week low, and 256 stocks traded in the upper circuit. The biggest IPO in the Indian capital market, LIC, listed at a discount and closed at Rs. 875.25, down by 7.28 per cent
The Nifty has rallied ferociously after parallel bottoms and Doji candle. The southern Doji candle got a bullish confirmation with Tuesday's massive move. It formed one of the biggest bullish candles after February 15. As we suspected on Monday, Tuesday's move has signaled a short-term upswing. The Nifty has touched a 23.6 per cent retracement of the current downswing. A close above the 16297 will fuel a further rally towards 16645. As this is a countertrend rally, we cannot expect a retracement of more than 38-50 percent of the prior swing. The Doji bullish confirmation will have a positive impact on the next 3 - 5 days. The RSI gave a clue on Monday with a sharp rise above the 30 zone. As level 15739 is protected, we can classify the market status as a rally attempt. After this big move, it requires a follow-through day to continue the counter trend rally. In any case, if the Nifty forms an inside bar tomorrow, then we need to doubt Tuesday' rally.
On a 75 minutes chart, the Nifty has broken out of a double bottom pattern. It also closed above the moving average ribbon along with the MACD line above the zero line. The strong bullish move will have a testing resistance at the 6th May gap area. The gap resistance is also at the 38.2 per cent level. Now, the time has come to stay away from the short positions and look for stocks formed the bases and ready to break out for quick short term gains.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
