Especially, Thursday's high is marked around confluence of Gann numbers, which suggests it's likely to act as a hurdle zone during recovery.
After a big rally, markets invariably come face to face with the resistance/hurdle at some juncture. First three sessions of the week saw index shielding first line of defence around 11,790 and marking multiple peaks around 12,000 mark. In Thursday's session, it registered an intraday high of 12,025 but momentum tapered off sharply, eventually resulting in a drop of 2.4 percent.
A steep decline from 12,000 erased prior session's gains, momentum on the downside picked up as it sustained below the point of polarity zone around 11,790 (i.e. the peak of Tall Red Bar seen on August 31, 2020, and bottom of previous Thursday's Doji candle).
The appearance of a large bearish candle on Thursday's session along with declining breadth in Nifty and broader markets indicates immediate hurdle near 12,000 zone. It can also be termed as a Red Tall bar. Historically, it's been observed that the high of such bearish candles tend to be troublesome. On several instances, Nifty has struggled to close above the peak of such candles.
Especially, Thursday's high is marked around the confluence of Gann numbers, which suggests it's likely to act as a hurdle zone during recovery. We expect the index to digest its multi-week upmove and it could retrace back to 11,600-11,550 zone.
Volatile moves were seen in BankNifty this week. On the Standalone chart, low pole pattern is formed, yet to confirm a double top buy pattern. Multiple peaks around 24,000 mark are likely to act as an immediate hurdle. After whipsaws moves of October, BankNifty/Nifty ratio is currently trading above 50-EMA. It appears to be a classic case of a shift in polarity (i.e. earlier resistance acting as support). So, from a medium-term perspective, EMA support and ratio around 1.97 would act as important support. On the upside, the ratio has the room open for a move towards 2.10.
Nifty IT index came off sharply from its peak this week. The ratio of Nifty IT/Nifty had rallied 50 percent from December 2019 low, even before other sectors started participating in the upmove. The ratio is reversing from a projected zone of 138-150 percent; suggesting plausible underperformance from near-term perspective. However, once the ratio stabilizes at lower levels, fresh opportunities will emerge in this space later. Currently, it is going through a retracement/corrective move after a strong up-trending phase.
Focusing on the price structure of Nifty IT index in 2020, during February-March month's correction, Nifty IT index declined by around 5,900 points. Thereafter, it rallied by 2 times of the entire fall. Recent throwback from around 22,600 index is going through a mean reversion and it is likely to digest multi-month upmove. Low of previous week (i.e. tall bullish bar on weekly chart) is an important support zone (around 20,300-20,000).
(Pritesh Mehta is the Lead Technical Analyst - Institutional Equities at Yes Securities.)Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.