Thursday’s action could well be described as an act of defiance as global markets have been on treacherous path in past few sessions with US & China involved in a continuing trade war.
Whenever weakness or bearish bias swings too far in one direction, market always tends to revert to the mean. Similarly, index’s prolonged correction seems to have found some respite around 10,750-10,800. Prior to Thursday’s big fat green bar, index had witnessed a tussle around 10,800 in last three sessions.
Barring Thursday’s session, Nifty had struggled to sustain any intra-day recoveries. However, action of last three sessions placed importance to confluence of support around 10,800 zone as it failed to drift lower (second line of defense as per Gann rule of 8, midpoint of three-digit Gann channel & two-year mean).
Appearance of a bullish candle near support levels along with RSI bouncing off oversold region infers immediate floor near 10,800. Such pattern requires positive follow-up action, hence a sustenance above the three-digit Gann number of 11,100 is essential.
Peak & bottom of a tall Green bar tends to have repercussions in the future trend too. It acts as a point of polarity zone. In BankNifty’s case, it found respite around the peak of a big bullish bar seen on 5th March 2019. The month of March was a breakout month for both the benchmark indices. Presence of three-digit Gann number of 273(00) and two-year mean proved to be a reference point in the recent structural set-up.
Thursday’s action could well be described as an act of defiance as global markets have been on treacherous path in the past few sessions with US & China involved in a continuing trade war. However, sell on rallies and buy on declines movement (evident from this week’s activity) led to a choppy environment on Dalal Street.
Choppy market is not an ideal time to make money on the index. During a period where the market is creating whipsaws within the trading band of 200 points, current rally would gain credence only on a convincing move above three-digit Gann number of 111(00). Sustenance above the same would result in a move towards 11,350 zone.
The architects in Thursday’s turnaround were index heavyweights with RIL & HDFC Bank among the major contributors. Reliance, after around 20 percent correction from the peak of Rs 1,418, has reversed from PRZ of Bat harmonic pattern. The same is placed around its 2-year mean, which suggests that prolonged corrective wave has come to an end. Similarly, HDFC Bank has bounced back from the confluence of support zone around Rs 2,170. It is essential for these index heavyweights to participate from hereon for Nifty to advance further.
(The author is Senior Vice President at Yes Securities.)
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