The Nifty50 rebounded sharply on December 26 to close above the psychological 18,000 mark, after a four-day downtrend, driven by short-covering and value buying in several beaten-down stocks.
The recovery was on expected lines as after taking strong support at 17,800-17,850, RSI (relative strength index) moved closer to oversold levels. Hence, going ahead, Friday’s low of 17,780 (which was also Monday’s low) is expected to act as a support for the Nifty50 in the monthly expiry week, whereas on the upside 18,200 (50 days simple moving average) is likely to be key for the further northward journey, experts said.
The Nifty50 closed with a long bullish candle on the daily charts after a long bearish candle in the previous session, while the RSI climbed over the 40 level, from around the 32 level seen on last Friday, indicating positive momentum.
The index opened flat at 17,830 and after initial volatility, immediately gained momentum to make a sharp up move in the rest of the session. It touched an intraday high of 18,084 in late trade and finally settled with 208 points or 1.17 percent gains at 18,015.
“After last week’s underperformance, Indian markets witnessed a sharp short-covering rally in the absence of any global cues. Our market had become oversold as the Nifty daily RSI was near 30 and the Put/Call ratio was 0.72; therefore, we are seeing a short-covering bounce,” Parth Nyati, Founder at Tradingo said.
Technically, Nyati said the Nifty has reclaimed its 100-day moving average (DMA), but 18,088, 18,133, and 18,200 are multiple hurdles on an immediate basis. Nifty has to cross its 50-DMA of 18,200 to gain any meaningful strength, while 17,850 will act as immediate support, he added.
As per option data, he feels there is a tussle between bulls and bears around the 18,000 mark; therefore, it will be important to see Tuesday’s price action, and if Nifty manages to trade above 18,000, then there is a good chance of a move towards 18,200 level.
On the Option front, we have seen maximum Call open interest at 18,200 strike, which is expected to be the key resistance area in the near term, followed by 19,000 strike, with Call writing at 18,300 strike then 18,500, while the maximum Put open interest was seen at 17,000 strike, followed by 18,000 & 17,800 strikes which can act as near term support levels for the index, with Put writing at 18,000 strike then 17,800 strike.
Hence, the expected trading range for the Nifty50 in coming sessions, as per option data, could be 17,800-18,500 levels.
India VIX, the fear index fell 1.4 percent to the 15.93 level, giving some comfort to the bulls.
After initial volatility, Bank Nifty also rebounded and traded strong in rest of session to hit a day’s high of 42,846. The banking index settled at 42,630, up 962 points or 2.3 percent and formed bullish engulfing kind of pattern on the daily charts.
“Bank Nifty’s downside support now stands at 42,000, where aggressive Put writing has been observed. The next hurdle on the upside is expected at 43,000 where the highest open interest is built up on the call side,” Kunal Shah, Senior Technical Analyst at LKP Securities said.
The index remains in buy mode as long as the mentioned support is held on a closing basis, Shah feels.
The significant buying interest was also seen in broader markets, as the Nifty Midcap 100 index climbed 2.7 percent and Smallcap 100 index gained 3.8 percent after nearly 6 percent fall and 8 percent decline respectively in the previous week.
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