Domestic equity markets rebounded on a strong footing on Monday after fizzling out of the tension at borders, the markets saw a sharp up move. On Tuesday, though we may expect the markets to continue with its up move, we do reiterate a word of caution. It is important to note that though the levels of 8690 have been moved past, the markets have not completely neutralised the Descending Triangle formation and therefore caution is definitely likely to weigh on the markets at higher levels. Secondly, the RBI comes up with Credit Policy today. For the first time, it will be a change wherein the RBI Governor would not be the sole deciding authority and MPC (Monetary Planning Committee) will cast its vote on the rate changes. Also, it would come out at 2.45 PM and not at its usual time of 11 AM and this is certainly to cause volatility in the second half of the session.
The levels of 8765 and 8800 will act as immediate resistance levels whereas the supports will come in at 8,690 and 8,650 levels. The RSI—Relative Strength Index on the Daily Chart is 50.9039 and it remains neutral as it shows no bullish or bearish divergence or any failure swings. The Daily MACD continues to remain bearish while trading below its signal line. On the derivative front, the NIFTY October futures have shed over 8.38 lakh shares or 3.67% in Open Interest. This makes it very much evident that there has been large scale short covering from the lower levels.
Pattern analysis on the Daily Charts makes it evident that the Markets have defied the Descending Triangle pattern as yet. Even though it has moved inside the neckline levels of 8690, it still remains vulnerable to selling pressure at higher levels. It is likely that it sees some volatility again and in the given scenario, the levels of 8,690 will become critically important to watch out for. Unless the markets moves well past the levels of 8,825-8,850, it will continue to remain heavily vulnerable to intermittent selling pressure at higher levels.
All and all, we might see the markets continuing with its up move but we reiterate a word of caution. It is advised that unless the mentioned levels are breached on the upside, all up moves should be utilised to vigilantly protect profits at higher levels. Stock specific activities will continue and out performance from IT, Pharma and Auto stocks will continue.
(The author is CMT, Consultant Technical Analyst at Gemstone Equity Research & Advisory Services)