The S&P BSE Sensex rallied nearly 200 points while Nifty50 rose above its crucial resistance level of 10,050 in trade on Tuesday led by positive global cues and is on track to hit new highs.
Supertrend indicator, a trend following indicator, gave a buy or an uptrend signal on the daily charts on Tuesday after the intraday price movement broke above the trend line.
The last time Supertrend indicator gave a sell signal which was on 10 August, Nifty lost about 200 points to hit its recent low of around 9,680. Before that, it gave a buy signal back in December 2016. The rally took the index from 8,000 to its record high of 10,137.
The 'Supertrend' is a trend following indicator just like Moving Averages and MACD (Moving Average Convergence Divergence). It is plotted on prices and their placement indicates the current trend. It works well in trending markets.
The indicator is easy to use and give an accurate reading about the current trend. It gives precise buy or sell signals or uptrend and downtrend. The default values used while constructing 'Superindicator' are 10 for Average True Range or trading period and 3 for its multiplier.
Apart from equities, Supertrend indicator can be used for other instruments such futures or forex market, and also on daily, weekly and hourly charts. However, it fails to give accurate signals in a sideways moving market.
Like any other indicator, Supertrend works best when used with other indicators such as MACD, Parabolic SAR, RSI, etc.
MACD gave a buy signal on 1 September 2017 when index broke above 9950 but then geopolitical tensions capped the upside. But, now with most of the worries out of the bay, the stage is set for the index to touch fresh highs, suggest experts.
From current levels, analysts’ expect Nifty to trend higher and can retest its previous high.
India VIX, which suggests expected volatility in the market over the next 30 days, eased by 3.6 percent to 11.90. As long as VIX sustains below 12.50 zones then index could see an up move towards its life time high territory.
Option data also indicate that bullish momentum will continue in the short-term. In 9900-10000 call option short covering was seen in Monday’s trade whereas at the same time fresh Put writing was seen at 10,000 option.
The Nifty50 entered inside the Symmetrical Triangle pattern last week which eventually diminished the bullish sentiment. But, a close above 10,000 earlier this week was good enough signs for bulls to start their party again on D-Street.
On Monday, Nifty opened with a gap and eventually surpassed the strong resistance zone of 9,988-10,015. The hourly Bollinger Band index has started expanding along with the price which hugged the upper band of the indicator which is a bullish sign.
“We expect the Nifty index to retest its recent all-time high of 10,138. Any sustainable move above this level will allow the index to rally further towards 10,250,” Aditya Agarwal, Head Technical Research, Way2Wealth Brokers Pvt. Ltd told Moneycontrol.
“On the flip side, 9975-9940 zone will act as an immediate support any decisive closing below this level will pull Nifty lower towards 9850,” he said.
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