In the last three weeks, in more than one instance, the Nifty was saved from officially getting back into a bearish mode by the support of its 200 Day Moving Average (DMA), a crucial market gauge of the underlying trend.
Due to the index?s performance around this widely followed indicator, traders are now hopeful that even if the market extends its more-than-one-month-old decline, the range of 5,130-5,000 would act as a crucial support for the Nifty.
Says Vijay Kanchan, head of institutional derivatives at JM Financial: ?200DMA acted as a strong resistance for the market for most part of 2011. The Nifty spent almost a year trading below this crucial long-term indicator before showing a positive cross-over in January this year, following a 15% rebound from December 2011 lows. Given this strong recovery, the Nifty should treat this pointer (200 DMA currently at 5,150) as a crucial support.?
Generally, the Nifty?s position with respect to its 200 DMA indicates the underlying tone of the market; the trend is considered bullish if the Nifty quotes above its 200 DMA and bearish if it?s below this benchmark.
Following the market top in November 2010, the Nifty moved below its 200 DMA in January 2011 and, after five failed attempts through 2011, managed to overtake this hurdle in early February this year.
?Three times during the last three weeks, the Nifty has taken support at its 200 DMA following market corrections. Hence, in the near-term, the benchmark index is expected to find strong footing near 5,150,? said Savio Shetty, derivatives trader with Prabhudas Lilladher.
Traders believe if the momentum of FII flows remains robust, the Indian market would manage to bounce back from 5,150-5,000 range.
?Higher crude oil prices and the issue of tax treatment on participatory notes activity have added great deal of nervousness in the recent past. Unless one of these events turn a strong negative for the market, the pace of FII flows would continue to lend sturdy backing to Indian market,? said a trader.
The YTD FII inflows for 2012 stand at $9 billion, its highest for the first three-months of a year in more than a decade. Interestingly, of the 57 trading sessions in the year so far, FII turned net sellers in for only seven sessions, with a maximum quantum of selling being $111 million on February 27.
