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It has moved above the psychological mark of 5,000, something that is more psychological than technical. Technically what is more crucial is that after staying below its 200 DMA for almost three months, the Nifty is just below this average. The average is currently placed at 5,149 and the Nifty's last close was at 5,111.
After international markets closed Friday, the Nifty's move above this average is a mere formality. But the question now is whether it will remain above, or just flip across the average before moving a southward journey once again.
In the past, the Nifty has crossed this average very sharply and then stayed above it for 2-3 trading sessions, consolidating gains, and then making a sharp move upwards. This has been the classical pattern whenever the market has been able to break its earlier highs. This week watch the Nifty's behaviour around its 200 DMA.
Coming to the fundamental status of the market it will be interesting to assess whether short covering triggered the spike or it was something else?
A look at the intra-day movement of Nifty charts and some leading stocks indicates that the early rally that began on Monday was a result of short covering.
But as quarter four results, which have been pouring in, have beaten market expectations in a large number of cases, it has also led to buying by some long-only funds.
As more results come in, we may expect more stock-specific buying leading to improved sentiments. If we look at the ownership of stocks, it appears that some sectors are clearly under owned. If there are positive surprises in that sector, then we could witness another sharp upward move.
As in the case of the telecom sector last week, both Idea and Bharti came up with better-than-expected results and the market rewarded them with handsome gains on the day of results. It indicates that we are not in a situation where good news is not rewarded by the market, which is usually the case when the market is overbought.
This week we have two factors to look for, both with the potential to provide a directional movement to the market: the RBI meeting on April 29 and then the US Federal Reserve meeting. After almost a period of five months, the Fed futures still have not indicated any change in interest rates in the US. Still, in case there is any cut, then the global markets will witness strong spike. In India, however, if there is any indication from the RBI that we are going to see an interest rate hike in the near future, then segments like banks and real estate are going to see a hit-and-disturb-the-sentiment that could gradually turn bullish.
Oscillator charts: The short-term oscillators have gained strength and, like the 200 DMA, most are placed near their resistance levels and we could see more strength if they cross their respective levels.
The moving average convergence divergence (MACD) on the daily charts has made the first attempt this year to enter positive territory.
On the weekly charts, the average and trigger lines are converging and placed just inside equilibrium territory.
In case the MACD is able to give a buy signal on the weekly charts, it would indicate that the bulls are going to creep in and take control of market.
The 14-day relative strength index (RSI) is in buy mode as it once again moves upward from equilibrium territory. On the daily charts, the same oscillators are now in buy mode and about to reach overbought territory.
On a macro basis, the oscillator charts are supporting the bulls. The first short-term resistance for the Nifty comes at level 5,149, after which there is resistance at 5,375 from the earlier top formed by the Nifty. The strongest resistance, which this upward move is going to face, will be at 5,550. This is not only strong physiological resistance level, but also the level where the Nifty gets into an intermediate
bearish trend.
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