The sustenance of the opening gains played the part as the markets perked up even higher to move past 8,900 levels to end the day on a robust note on Tuesday. We will see some consolidation at higher levels but the up move still continue to remain intact and inherent strength on the Daily Charts clearly remain visible. On Tuesday, the charge was led by banking and auto stocks and after some consolidation that is expected, we will see some participation coming in from pharma and IT stocks which will aid the further up move for the markets in near term. On Wednesday, though opening would be crucial, it is widely expected that we will see the session trading mostly in a capped range with very limited downsides, though some volatility will remain ingrained. The consolidation is likely due to the “overbought” nature of the markets.
For Wednesday, the levels of 8,965 and 8,990 will act as likely resistance levels and the supports are expected to come in at 8,910 and 8,885 levels. The RSI—Relative Strength Index on the daily chart is 72.6939 and it has reached its highest value in last 14-days which is bullish. It does not show any bullish or bearish divergence but it now trades in “overbought” territory. The daily MACD remains bullish as it continues to trade above its signal line. On the candles, a big white candle that has occurred after a consolidation lends credibility to the fresh up move. On the Derivative front, the NIFTY September futures have added over 7.28 lakh shares or 2.20 per cent in Open Interest.
Pattern analysis on the daily charts shows a credible fresh up move after three days of consolidation. It is important to note that the markets are now trading in “overbought” territory and this may lead to some consolidation in the near term. However, the lead indicators supported by F&O data clearly indicate some more steam that is left in the markets.
Overall, we may see some consolidation coming in as heavily overbought sectors like BankNifty and Auto see themselves consolidating their gains. However, the downsides would remain limited as we will see broader participation from NIFTY Junior, IT and other stocks which have underperformed. Overall, there may be some volatility but downsides may remain limited and we may see the markets testing 9,000-plus levels in coming days.
(The author is Milan Vaishnav, CMT, consultant technical analyst, Gemstone Equity Research & Advisory Services)