No sense in holding any short positions

The broader market rallied from an oversold area and closed above the crucial zone. NSE Nifty closed at 17594.35, with 272.45 points or 1.57 per cent gain. All the sector indices and thematic indices ended in the green zone. Nifty Metal index is the top gainer with 3.55 per cent, followed by Bank Nifty with 2.13 per cent. A majority of sector indices gained by 1 to 1.5 per cent. The India VIX is down by 6.09 per cent to 12.18. This is the lowest closing after 26th July 2021. About 48 stocks hit a new 52-week low, and 91 stocks traded in the upper circuit. Adani Enterprises, Adani Ports and Reliance were the top trading counters in terms of value.

The Nifty rallied after four days of oscillation around 200DMA. It retraced just above the 38.2 per cent of the prior downswing. It moved above the 200EMA, but with a last-hour profit booking, it declined and closed below it. On a weekly basis, the index is able to close above the 40-week average and form a hammer kind of pattern. On an hourly chart, it looks like a double-bottom breakout. It may retrace towards 17695 and 17800 levels in the next coming days. The rally with higher volume validates the upside move. After the budget day, the Nifty recorded the highest volume. But the Open Interest declined by 3.82, which is a concern and shows the unwinding of the positions. The rally was mainly led by the metal and banking stocks. The RSI went back to the above 45 zone, and the MACD line turned up. A mentioned above, the immediate target and resistance are placed at the 17695-704 zone, which is 50 per cent retracement level and the 20DMA. The 50DMA is placed at 17,857 points. Depending on the follow-through days, the Nifty may test this strong resistance in the next 3-4 four days. If it once again fails to attract the follow-up buying interest and closes below 17460 means, the bull power is just a short-covering. For now, there is no sense in holding any short positions. But stay cautious; the bears can attack any moment as long as it trades below the 17950, which is a sloping channel resistance line.

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