Many things have happened that can be considered important from a technical point of view. Nifty again validated the declining trendline as important pattern support. The index also respected 200-DMA as a major support area. The 200-DMA currently stands at 16,811.
The current move prevented a technical breakdown on the cards. It also kept the markets within a defined trading range of 17,000-17,500 levels. The weekly options data suggests that the maximum concentration of call OI is moving to 17,500. In the immediate term, this level can be seen as one of the important resistance levels.
The relative strength index (RSI) is at 48.01; it is neutral and does not show any divergence from the price. The daily MACD is bearish and is trading below the signal line. A large white candle emerged; this not only reflects a strong directional consensus from market participants, but also validates the strength of the downtrend line support as well as the 200-DMA.
Pattern analysis shows that the markets have managed to stay within a defined trading range; the most immediate resistance level being 17,500. The 200-DMA remains the most immediate support point on a closing basis for the market.
Overall, the most important takeaway from Tuesday’s session is that the market has avoided a structural chart breakdown. It is important to note that the thrust observed was mainly due to the short cover.
For the recovery to hold, it will be important that further volume-based buying takes place. It is recommended to approach the markets very selectively while keeping a watchful eye on protecting profits at higher levels.
(Milan Vaishnav, CMT, MSTA, is a consulting technical analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based in Vadodara. He can be contacted at [email protected])