Avoid short positions above 16,140pts

The rally in the global markets fuelled a sharp bounce in the domestic markets. The broader market participation and the rally in beaten stocks led to the breakout. The benchmark index Nifty went up by 229.30 points or 1.43 per cent, and closed at 17278.50. This is the biggest rise in the present swing. The Nifty IT and Metal indices are the top gainers with 3.16 per cent and 2.49 per cent.

Bank Nifty and Fin Nifty are up by 1.95 per cent and 1.42 per cent. Only the Pharma index is down by 0.15 per cent, and FMCG closed 0.09 per cent lower. All other sector indices registered over one per cent gains. As expected, the VIX is furthered to 17.16. The market breadth is extremely positive as 1436 advances and 440 declines. About 49 stocks hit a new 52-week high, and 125 stocks traded in the upper circuit.

The Nifty is sharply higher and closed above the prior swing high. It also broke the downward channel. The index closing above the 50DMA decisively, is another positive signal. Opened with a 100-point positive gap and sustained the initial gains till the end. There were no major dips during the day, but the Nifty moved slow and steady upwards.

By closing above the prior high, the index has turned bullish. The RSI reached above 59, closing above is a positive sign. It needs to sustain above the 60 zone for a stronger bullish tone. Closing above six-week high shows a stronger strength. After oscillating around the zero line, during the last week, the MACD has finally closed above it. But the RRG Relative Strength needs to be strengthened. There is an uptick in momentum. The immediate resistance is placed at 16325, which is an Anchored VWAP line. The KST and TSI indicators are above the zero line, and are in the bullish set-up. A strong HeikenAshi candle has formed on Monday, which is a major relief for the bulls. Barring FMCG and Pharma, a majority of sector indices gained over a per cent, showing broader market participation.

For now, the market has turned positive and avoids short positions as long as it trades above 16140. The short-term target is at a 20 week moving average of 16415. We need to evaluate the price behavior here. The beaten-down IT and Metal sectors led the market on Monday. There are some positive divergences in the Nifty IT index. The positive sentiment may continue for another two days.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)