Fresh records on the way: Technical indicators suggest rally will continue in June

After gaining 6.5 percent in May, Indian equities have started strongly in June. The Nifty50 hit 15,800 level on June 9 while the Sensex hit a fresh peak in morning trades today. At 10:10 am, it was trading at 52,559.80.

Technical indicators suggest that the rally will continue in June. There could be some consolidation but the overall trend will be on the upside, said experts.

“The global setup, the current setup of the Nifty, the improving situation on Covid and normal monsoon expectation should drive the markets higher in this month,” said Rahul Sharma, Head- Technical & Derivative Research, JM Financial Services Ltd.

“Also the pent-up demand along with the unlocking theme should keep the bulls enthusiastic,” he said.

Now that the Nifty50 has already breached 15,800, the rally could well extend towards 16,000. However, there is still resistance above 16,000 levels, said, experts.

The maximum Put OI (open interest) is placed at 15,000 followed by 15,500 strikes while the maximum Call OI is at 16,000 followed by 16,200 strikes, according to options data available on June 9. In other words, 15,000-15,500 will now act as crucial support for the current June series of Nifty index derivatives while on the higher side 16,000-16,200 will act as a resistance.

If the momentum sustains above 15,800 levels it would open doors for the Nifty50 to touch fresh highs above 16K.

“June 2021 is again likely to be in favor of the bulls. In the case of Nifty, the weekly momentum indicator has given a fresh buy signal,” said Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by BNP Paribas said.

“The weekly Bollinger Bands are in expansion mode after a contraction phase, which is supporting the rally. So the rally is expected to continue over the next few weeks. In terms of the levels, the index can target 16,000 on the upside by the end of this month,” he added.

Bollinger Bands is a technical analysis tool in which 3 trendlines are plotted 2 standard deviations away from a simple moving average of a security (this could be a stock or an index). Bands are used to spot overbought and oversold levels. A big price move could be witnessed on either side when bands tighten/contract as volatility lessens.

Muted global cues led to some consolidation in the last couple of days which pushed the Nifty50 below 15700 levels, as investors eyed US inflation data, but a sharp dip in bond yields boosted sentiment.

Back in India, most dips are getting bought which is a positive sign for the rally to continue. On the domestic front, the decline in COVID cases, as well as gradual unlocking announced by various states, will support the bullish sentiment.

Additionally, a strong rollover to the June series, rising inflows to equity mutual funds, and steady flows from foreign investors in June (FIIs have poured in more than Rs 3400 crore in the cash segment of Indian equity markets) will keep the trend tilted towards the bulls.

“There are a number of factors which point out that bulls could remain in control this June. Nifty futures have seen a rollover of 68% higher than May,” Nirali Shah, Head of Equity Research, Samco Securities said. A higher rollover for the June series suggests that long positions were rolled over.

"These rollover positions are majorly on the long side, and as broader indices are continuously seeing higher volumes, the bull run should continue even in June,” she said. The rally is not limited to few names but it has bee broad-based which makes it more sustainable.