In line with those projections, the benchmark index saw a gapup opening and witnessed a sharp technical pullback to end the day with a gain of 83.35 points or 0.86 per cent.
However, the coming sessions would be critically important for the market as the current pullback has been on the back of heavy short covering. It is important that such short covering continues and subsequently gets replaced by fresh buying.
On Wednesday, the 9,825 and 9,860 levels are likely to act as immediate resistance for the Nifty50 while supports should come in at 9,750 and 9,685 levels.
The relative strength index or RSI on the daily chart stood at 43.5271 and it looked neutral showing no divergence from the price. The daily MACD is bearish, but has flattened its trajectory. On the candles, a small candle resembling a bullish belt hold pattern has occurred. This usually implies continuation of the pullback.
Pattern analysis shows the market has remained in the rising channel that it has been trading in and has held the 50-DMA as support at the close.
The VIX remained at a seven-month high. It is important to note that the pullback seen on Monday has come with a drop in open interest, which hints at heavy short covering.
As mentioned above, it would be critical to see if this continues. We see fresh long creation over the coming days. As of now, the Nifty50 has validated the support at 50-DMA and the 9,700-9,770 zone will be an extremely critical short-term support. We recommend avoiding shorts and making modest purchases on declines. Traders should adopt a cautious approach for the day.
STOCKS TO WATCH:
1. HINDUSTAN ZINC: Buy this stock above Rs 281 with a short-term target of Rs 290. The stock remains in the leading quadrant on the Metal Index, when benchmarked against the Nifty50. After a minor corrective decline, an engulfing bullish candle has emerged. This is significant as it has occurred near multiple support area and also when the all the moving averages remain in close vicinity. The RSI has reversed and the daily MACD has flattened out and reversed its trajectory. Upward revision in price over coming days cannot be ruled out.(Any call on this above the prescribed level would be positional and not intraday.)
2. CESC: Buy CESC above Rs 941 with a short-term target of Rs 955. After a rangebound movement and some corrective decline from the immediate highs, few signals have emerged, which point towards a likely uptick in prices. A morning star pattern has emerged on the daily chart, which points towards resumption of momentum. Its occurrence near the strong support areas of 50-DMA and 100-DMA also holds significance. (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 firstname.lastname@example.org)