Nifty downside move only if fails to surpass 16,400 mark

The equities continue to rally for the second day. The HDFC group stocks led the market rally during the week. The Nifty gained by 182.30 points or 1.13 per cent and settled at 16,352.45. Beaten down the index, the Nifty IT is in limelight with a 2.54 per cent gain. Banknifty and FinNifty are up by 1.5 per cent each. The Auto index and FMCG indices are up by 1.56 per cent and 1.04 per cent. The other sector indices are up by 0.5 per cent to one per cent. The Broader indices Nifty Midcap-100 and Smallcap-100 indices up by 1.38 per cent each. The market breadth is positive as 1,487 advances and 600 declines were recorded. About 33 stocks hit a new 52 week high, and 133 stocks traded in the upper circuit. Reliance, HDFC Bank and Infosys were the top trading counters today in value terms.

The Nifty registered a closing high after May 9 and near the prior parallel high. Finally, it is able to go above the 20DMA after April 19. It recovered 441 points from Thursday's low and formed a long lower shadow candle on a weekly chart. As it also formed a higher low during the week, closing higher gives the bulls a sentiment boost. The Bollinger bands started contracting, which is an indication of consolidation to continue further below the gap area. After trading over the 500 points range, it gained just 86 points on a weekly basis. As it formed a slightly higher high candle with a higher low, the probability of breakout of the 11-days base is higher. The next level of resistance above the 16,400 breakouts is at the gap area of the 16,484-623 zone. Another positive factor is that the Nifty is able to close above the 23.6 per cent retracement level. The 38.2 retracement level is at 16,644, just at gap area resistance. Only above this zone of resistance we can forecast the market towards 17,000 level. Now the downside move will happen only if the Nifty fails to surpass the 16,400 and declines below the 20DMA. The RSI is inching towards the above 50 zone, and the histogram shows an increase in positive momentum. For now, the structure is positive and very limited scope for the short positions.

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