Nifty: Due for a minor pullback

Nifty: Due for a minor pullback
Highlights

Nifty closed with minor loss for the week and completed five weeks of fall. Weekly movement suggests a ‘Hammer’ pattern suggesting a possible pullback from the current level. The rupee staged a smart rally on Friday. Considering the above, a reasonable pullback is possible at least for one week, but technically, Nifty is close to strong resistance area of 5555, which if crossed convincingly could give a smart pullback with resistance around 50DMA/ 200DMA, which are placed around 5750 / 5800.

Nifty closed with minor loss for the week and completed five weeks of fall. Weekly movement suggests a ‘Hammer’ pattern suggesting a possible pullback from the current level. The rupee staged a smart rally on Friday. Considering the above, a reasonable pullback is possible at least for one week, but technically, Nifty is close to strong resistance area of 5555, which if crossed convincingly could give a smart pullback with resistance around 50DMA/ 200DMA, which are placed around 5750 / 5800.

However, macro fundamentals are indicating further deterioration and any pullback/ recovery could only be short-lived and further lows too cannot be ruled out, Technically, Nifty had entered medium / long term bearishness. Unless it goes above 200 DMA, it would continue to remain bearish. Further, if Food Security Bill is passed, it would put lot of pressure on the exchequer and widen the deficit, which would be viewed negatively by market.

However, fundamentally, Nifty is quoting below its long term average PE and any further fall could make it attractive from long term point of view. So, the present divergence between fundamentals and technicals could prevail for some time. Nifty is bearish in all time frames i.e., short , medium and long- term as long as it trades below 200 DMA. Short-term uptrend would be restored if Nifty closes above 5500 mark, with stiff resistance around 5555. 50DMA is below 200DMA and is in ‘sell zone’ and any rise may be utilized to sell till Nifty closes above 50 / 200 DMA. As being pointed in this column for the last couple of weeks.

Nifty had oscillated in a narrow zone of 750 points (6240 to 5480) in the last seven and half months and presently the range is widened to about 980 points with last week’s fall and has potential for the range to get further widened to 1000 to 1200 points by year end. Hence, sell on smart rally as long as it is below 200 DMA. For the coming week, Nifty spot is expected to face resistance at 5555, 5625, 5700 and find support at 5400, 5325, 5250. Nifty, presently in short term bearishness, would get out of the same only on a close above 5700.
Advice for Traders
Nifty recovered sharply from lower levels suggesting further recovery. However, there is strong resistance around 5555, which if crossed convincingly can take to 5700 levels. In view of the last week of F&O expiry, scrip specific action is most likely. Buy on decline with 5250 as stop loss and sell with stop and reverse above 5555. Further, weekly open level is very important for the entire week. Short positions may be avoided as long as it maintains / closes above weekly open and vice versa.
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