Nifty could move to the immediate resistance level of 11,200 levels, and any close above 11,200 levels would result in further short covering which might push Nifty to levels around 11,400-11,500
Nifty50 surged 229 points on August 26 to post its highest absolute gains since May 20. It closed at 11,058 levels. The move was largely on the back of a series of measures announced by the finance minister on August 23 to build the confidence of the capital markets and the auto industry.
By closing at 11,058 levels on August 26, the Nifty50 conquered its 20-days EMA hurdle for the first time after the budget day. The Nifty50 was facing resistance around its 20 days exponential moving average and reversed south the moment it touched since the breakdown seen on the budget day.
Moreover, on August 23, the Nifty has formed bullish “Piercing line” candlestick pattern on the daily charts. This pattern usually indicates a trend reversal.
The Relative Strength Index (RSI) Oscillator has also formed positive divergence on the daily chart of Nifty and Bank Nifty. In the derivatives, we have seen the first sign of long build-up in the Nifty Futures on August 26.
Amongst the Options, we have seen Put writing at 10,800-11,000 strike prices, indicating strong support around these levels for the coming days.
Unless Nifty closes below it, the trend would be considered bullish for the markets. On the upside, the 11,200 level is likely to act as an immediate resistance where Calls have been written.
This level also coincides with the 200-day SMA which is placed at 11,196 levels. The Nifty Midcap and Smallcap indices also participated in the rally where they gained by 1.58 percent and 2.34 percent respectively.
The Advance decline ratio remained positive for the last two days which is a positive sign. Considering the above indicators, we believe that Midcap/Smallcaps have formed a bottom, and we may see a sharp bounce back from here on.
To conclude, the short-term trend for the Nifty has turned bullish. Therefore, our advice would be to accumulate longs in the Nifty with the stop loss placed below 10,800 levels.
On the higher side, the Nifty could move to the immediate resistance level of 11,200 levels, and any close above 11,200 levels would result in further short covering which might push Nifty to levels around 11,400-11,500.
In the Bank Nifty, one should accumulate long positions with the stop loss of 27,500 levels. On the higher side, the immediate resistance is seen around 28,500 levels, followed by 28,870.
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