Markets

Nifty50 may continue bounce, test 20 DMA

As analysed in our previous note, the domestic equity market not only continued with its upmove, but also saw shorts being covered and replaced with fresh longs.

The benchmark Nifty50 index saw a decent rally on Wednesday and ended the day with net gains of 103 points or 1.05 per cent. In all likelihood, the market will continue with its momentum on Thursday as well. Barring some consolidation, if at all there is any, the market will be seen attempting to test the 20-DMA level and probably try to move beyond that. A buy signal on the Stochastic has also emerged on the daily charts with a bullish divergence in the direction of the major trend.

The 9,950 and 9,985 levels will act as immediate resistance levels. Supports are likely to come in at 9,840 and 9,810 levels.

The Relative Strength Index or RSI on the daily chart stood at 50.9435 and it remains neutral, showing no divergence. The daily MACD remains bearish, while trading below its signal line, but it is sharply narrowing its trajectory.

Wednesday’s bounce came in with the addition of over 2.60 lakh shares or 3.3 per cent of NIFTY futures in the current series. This shows that not only did shorts get covered, but they were replaced with fresh longs as well.

Pattern analysis suggests the market has firmly taken support at the lower support line of the channel in which it has been trading in. This support coincides with the 50-DMA and, therefore, this zone has now reinforced itself as a major pattern support for the market.

Though we do not expect the market to race towards new highs, we can certainly expect it to continue with the bounce from the current level. It is likely to test the 20-DMA and might consolidate. We recommend strictly avoiding shorts and continuing modest purchases on every minor corrective decline. A positive outlook is advised for the day.

STOCKS TO WATCH:
1. ITC: Buy this stock above Rs 279 with a short- term target of Rs 285. The stock has taken support at its 200-DMA after a sharp corrective decline. It is likely to witness continuation of this technical pullback. A buy signal over Stochastic has emerged with a bullish divergence. A bullish candle with a potential of reversal has occurred near 200-DMA support area which is extremely bullish. RSI has reversed from a oversold area. (Any call above the prescribed level would be positional and not intraday.)

2. MRF: Buy MRF above Rs 65,780 with a short-term target of Rs 66,780. The stock has witnessed a corrective decline over previous days. A potentially bullish candle has emerged which may lead to some reversal and technical pullback. Further, a buy signal over Stochastic has emerged. RSI has bounced off from a oversold area which too is bullish. An uptick in prices is expected over coming days. (Any call on this above the prescribed level would be positional and not intraday.)

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. Contentions made in this article are mere observations. Investors should consult their financial advisers before taking any positions based on these remarks. Views expressed are the author’s own do not represent those of ETMarkets.com. The author can be reached at milan.vaishnav@equityresearch.asia)

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