Little scope for short positions in next 3 days

On the weekend, the markets rebounded and closed higher for the second successive day. The Nifty went up by 114.45 points or 0.67 per cent and closed at 17100.05. The Realty and the Metal indices were the top gainers on Friday with 3.03 per cent and 2.39 per cent upwing, respectively. Banknifty and FinNifty also gained by 1.19 per cent each, playing a key role in the recovery. The pharma, auto, and FMCG indices are down by half a per cent. All the other sector indices closed positively by 0.17 per cent to 0.83 per cent. The market breadth is positive as 1172 advances and 756 declines. About 139 stocks hit a new 52-week low, and 66 stocks traded in the upper circuit. Reliance, TCS, and ITC were the top trading counters today in terms of value.

On a highly volatile day, the benchmark index was able to close positively, above the prior day's high. It formed another doji candle. As Friday's close is above the prior day's high, Thursday's long-legged doji got the confirmation for a bullish reversal. The Nifty and Banknifty erased the intraday losses in the late afternoon session. The sharp recovery in the last hour is because of short covering on the weekend. As the doji candle got the confirmation for its bullish implications, expect the market to be positive for the next three days. The index is still below all key moving averages. But the RSI has developed a positive divergence. The Nifty made a swing low at 16850 on Thursday, and it retraced above the 23.6 per cent of the prior downswing. This is an early sign of a reversal or a short-term technical pullback. If the Nifty sustains above 17075, it can test 17213 and 17325. The 200DMA and the 61.8 per cent retracement level are at 17451, which may probably swing high if the Nifty continues to be positive. Today, the 20 DMA closed below the 200 DMA. Except for 200DMA, all the moving averages are in the downtrend. For now, there is very little scope for short positions for the next two – three days.

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