Nifty rallies 1,000 points since May 26: time to turn cautious?

The Nifty50 rallied for six straight sessions in a row to close above its crucial resistance level of 10,000 for the first time since March 11. It rallied 1000 points since May 26 when the Nifty index closed at 9,029. It hit an intraday low of 8,996 on the same day.

The Nifty50 closed 82 points higher at 10,061 on June 4.

The level of 10,000-10,100 was being considered as a crucial resistance level for the index, and on expected lines, the index faced resistance above 10,100 levels.

The question now is – will the rally continue? The last 1000-point rally on Nifty was fast and furious, but the journey from here might not be as smooth, suggest experts. Traders are advised to lighten their position, they say.

“Last couple of weeks have been excellent for our markets as we rallied more than 1000 points on Nifty before anyone could realise. Today we finally broke that sturdy wall and has managed to enter the five-digit territory beyond 10000. But from here on the next move will not be as smooth as it has been over the past few days,” Sameet Chavan (Chief Analyst-Technical and Derivatives, Angel Broking told Moneycontrol.

“In our sense, as long as we are holding 9900-9700, the possibility of extending this move cannot be ruled out. Wednesday’s ‘continuation gap’ would be crucial because the immediate gap-filling process would lead to an ‘exhaustion gap’, which may probably apply brakes on the ongoing momentum,” he said.

Chavan further added that the coming session would be quite crucial (especially for Banknifty). On the upside, once we see Nifty surpassing 10200, the move is likely to extend towards 10400-10600, which would be then seen as a cluster of resistances.

India VIX remained flattish and marginally fell down by 0.24 percent at 30.04 levels. The volatility index is hovering around its support of 30 levels and lower VIX is supporting the higher market base, suggest experts.

Banking stocks led the rally for the second day. Bank Nifty continued its winning streak for seventh consecutive sessions as it rallied towards 21600 zones. However, it corrected sharply by more than 700 points from higher levels in the last hour of the session but managed to close with the gains of around 2 percent.

“Nifty has rallied by more than 1100 points in just six trading sessions so now it may see a consolidative move before starting the next leg of the rally. As of now, the trend is intact to positive till it holds immediate support of 9889 zones while hurdles are seen at 10200-10300 zones,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Ltd told Moneycontrol.

“Traders are now suggested to keep the position light with trail SL as a drift below 9889 may cause in a pause in the recent upside rally. Now the rate-sensitive index (NiftyBank) might see some consolidation with immediate support at 20500 then 20000 while hurdle at 21600 then 22000 zones,” he said.

On the monthly options front, the maximum Put OI is placed at 9000 followed by 9500 strikes, while maximum Call OI is at 10000 followed by a 10500 strikes.

Data suggests that marginal Call writing in 11000 followed by 10800 strikes while Put writing is seen at 9600 followed by 10000 strikes. Options data suggests a wider trading range between 9700 to 10300 zones.

“Running corrections are bound to be there in a bullish trend. Nifty has risen for 6 straight sessions. So there could be a small breather after a steep rise. However, the positional trend of Nifty should remain bullish, as Nifty has formed a higher top above 9889 preceded by the higher bottom,” Vinay Rajani, Senior Technical & Derivative Analyst – Retail Research at HDFC Securities told Moneycontrol.

“Considering the technical setup, Nifty is looking strong and likely to extend the rally above 10000. There could be small corrections at regular intervals but the same should be utilized to initiate fresh long positions,” he said.

Rajani further added that previous resistance is now expected to interchange its role as a support at 9890 odd levels. So this level is a nice level to initiate fresh longs with the stop loss of 9700. On the upside the, range of 10160-10334, the unfilled gap area on the daily chart would act as a resistance.

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