Back in September 2013, Index had staged a strong pullback after taking support of its 100-WMA (weekly moving average) and in current scenario, Nifty has done something similar. Sharp correction bought the index close to the support of its 100-WMA before bouncing back sharply, which suggest that index has created a short-term bottom.
Despite the destruction on daily and weekly chart patterns, Nifty is trading comfortably above the rising trendline on the monthly chart. It always makes sense to always look with a broader perspective, whenever a rare event occurs (eg: Monday’s crash). As long it sustains above the same, we need to consider any declines as just a correction in bull market.
Moreover, on the weekly chart, 38.2% retracement of the upmove seen from low of 5,119 to the peak of the index comes around at 7,600, which coincides with the support of 100-WMA. Cluster of supports are seen between 7,500-7,700, which indicate that Nifty is going through a phase of bottoming out.
A simple 50% retracement of recent correction comes around 8,100. And if Index is able to sustain above 8,150 for at least two weeks, it will confirm a reversal to the downtrend.
The author is Senior Technical Analyst at IIFL