After falling 10 percent on Monday, bulls defended crucial levels of 7,500 which is 50 percent retracement mark from low of 2008 (2,252) and high of 2020 (12,430), giving relief to a sharp fall of almost 3,800 points in March.
Formation of positive divergence in RSI on a daily time frame supported reversing of prices, as index managed to take support from the strong demand zone standing around 7,500-7,300 levels on the higher time frame.
At the same time, Nifty confirmed short term reversal by closing above crucial resistance of 8,600 levels too.
But we need one higher closing on the weekly timeframe as a confirmation before declaring reversal and can start preparing for a push towards 20-DMA placed around 9,600.
On the flip side, a decisive close below strong psychological levels of 8,000 can push index towards the line of parity on a monthly time frame standing around 7,300 marks.
Banking Index has managed to close around crucial psychological levels of 20,000 and 5 day’s highest high is suggesting a reversal of short term trend and relief rally towards 25,000 levels cannot be ruled out; conversely, any decisive trading below 18,500 will be a sign of active bears.
Recommendations for the next 3-4 weeks:
After hitting a peak of Rs 265, the stock fell sharply towards Rs 115-120. From here, a chance of developing demand is higher.
As of now, the appearance of morning star on the daily chart is giving cues to accumulate this stock at lower levels.
The momentum oscillator RSI which is currently overbought zone took a turn on the north side.
As long as it sustains above the mentioned zone, the possibility of moving on the upside is higher and it can hit our target with ease.
Bargain hunting is seen at lower levels in the scrip from where it formed a strong base.
Currently, it formed a double bottom on the hourly chart along with the positive divergence in RSI which suggests a reversal is round the corner.
Indicators and oscillators also lending support to the price action. Traders can take an entry from the level of Rs 130 for the target of Rs 148 while keeping a stop loss at Rs 119.
The stock bottomed out near the levels of Rs 245-250 and has been consolidating for the last few days on the daily chart.
The emergence of Dragonfly Doji near the support line on the weekly chart indicates upside movement in the coming sessions.
Daily momentum indicator RSI seems to be taking support from its falling line while being trading in an oversold region on the daily chart also creating positive rhythm in the scrip.
Furthermore, the declining histogram in MACD adds the conviction of buying the scrip around Rs 290 for the target of Rs 315 with a stop loss at Rs 273.
(The author is Head of Technical Research, Narnolia Financial Advisors)Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.