On Friday, the index opened just near this level. After a brief consolidation near this point in the first half of the day, Nifty penetrated this important zone and went past it. There was no looking back that day for the index as it just got stronger as the day progressed. Nifty was able to hold on to its high point and ended the day with a strong gain of 209.90 points, or 1.48 per cent.
Despite staying overbought, Nifty has moved higher with strong force; in the process it has dragged its immediate support point higher at 14,200. This was evident from the F&O data which showed heavy call writing at 14,200 strikes. The NIFTY PCR (all expiries), though, is at 1.71, which is on the threshold of getting overbought.
However, even while staying highly prone to volatile profit taking bouts, Nifty has made some room for itself for an up move from current levels with 14,200 acting as a very short-term support. Volatility mostly stayed unchanged.
With the market closing at the high point of the day, and with the F&O data showing strong undercurrents, Monday may see a positive start to the day. The levels of 14,445 and 14,500 will act as important resistance levels, while support will come in at 14,280 and 14,200 levels.
The Relative Strength Index (RSI) on the daily chart is 77.38; it continues to stay in the overbought zone above 70. The daily MACD is bullish as it stays above the Signal Line.
A white body occurred on the candles. Apart from this, no other important formations were noticed.
Despite staying overextended and overbought, Nifty has surged higher with just two days of intermittent consolidation in between. This speaks volumes about the strong undercurrent that the market enjoys at present. However, the trajectory that the Nifty forms after opening on Monday will be crucial to decide the trend as Nifty stays prone to profit taking and some consolidation at higher levels. We recommend avoiding shorts as the underlying sentiment is extremely buoyant. However, momentum on the upside should be chased in a highly selective manner and while staying moderate on the overall exposure.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)