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After several consecutive sessions of sharp decline and selling by foreign institutional investors (FIIs), the domestic stock market is beginning to show substantial signs of stability and recovery. The positive trend from Asian markets and the strength of Nasdaq and S&P 500 in American markets have again boosted the confidence of lax investors on Dalal Street. Along with this, the softening of crude oil prices in the international market has also worked as a relief for the Indian economy and market. National Stock Exchange’s main index Nifty 50 now seems to be forming a strong base at lower levels. Retail and DII investors from across the country, from Lucknow, Mumbai, Delhi, are seen making value buying in select large-cap and quality mid-cap stocks at these levels. Technical analysts believe that a short-covering rally may be seen as the index comes out of the oversold zone, which will accelerate the upward movement in the market.
Paying attention to levels has become of paramount importance for traders and swing investors in the current market. The support and resistance levels for Nifty 50 on the technical charts are as follows:
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First important support: Range of 22,500 to 22,480. This level has been continuously acting as a strong cushion for the last few sessions. As long as Nifty remains above it, the trend of buying on dips may continue.
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Strong Base/Crucial Support: 22,400 level. This level will play the biggest role in preventing the market from falling in the event of any unexpected global shock. New selling can take over only if it slips below it.
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First resistance (barrier level): Range of 22,650 to 22,700. It will be essential for Nifty to sustain and close above this level to convert its recovery into a strong uptrend.
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Big Breakout Resistance: 22,800 to 22,850 levels. If the index crosses 22,700, then on the basis of short covering, Nifty can rapidly move towards the zone of 22,800-22,850.
Talking about technical indicators, the Relative Strength Index (RSI) on the daily chart is gradually rising from its oversold range and moving towards the neutral territory, which shows that the bears are loosening their grip. Additionally, the negative momentum on the Moving Average Convergence Divergence (MACD) is also seen decreasing. If we look at the data of derivatives and option chain, then heavy put writing is being seen at the strike of 22,500, due to which this level has become a strong floor. On the other hand, the highest open interest (OI) is accumulated at call strikes of 22,700 and 22,800, indicating that call writers are preparing to book profits or book supplies at these levels. If the market crosses 22,650, these call writers will have to cut their positions (short covering), which may lead to a one-sided jump of 100 to 150 points in the index.
Banking and IT sectors seem to be at the forefront of this possible recovery of Nifty. Bank Nifty has also strongly defended its critical support zone. Continued delivery-based buying is being seen at lower levels in majors like HDFC Bank, ICICI Bank and Kotak Mahindra Bank. On the other hand, Indian IT indices (TCS, Infosys, Wipro) are directly benefiting from the rally of tech stocks in the US markets. Along with this, auto and pharma sectors are also continuously providing defensive support, while selective buying trend is being seen in realty and metal stocks. Sector-specific action is making it clear that the all-round selling in the market seems to have subsided for the time being and the foundation for a broad-based recovery is being laid.
In the current market, traders should adopt a strategy based on levels rather than being overly aggressive. Traders on the long side should view any dip near 22,500 as a buying opportunity with stoploss. At the same time, those making fresh long positions should wait for a sustained move of 15 to 30 minutes above 22,650 to avoid fake breakout. At the same time, for long-term investors, this market is providing the most suitable opportunity not to panic, but to gradually deploy their capital in fundamentally strong companies in a systematic manner through lump sum or SIP. Strict risk management and adherence to stoploss is the key to capital protection and better returns in this volatile market.