On the intra-day charts, Nifty is also on the verge of breaking out from the falling wedge pattern. Index has provided pullback from cluster of important support placed between 7670 and 7710. i.e. gann support. So the recovery seen from Friday’s low is likely to continue in the near term.
On the monthly charts, the Nifty needs to close above 7973 above which Nifty could get into a turbo mode and head towards 8410.
When index gets into freefall zone, sanity suggests that traders should not punt on support levels. Let the market decide where it wants to stabilize. Our historical study of corrections in Indian markets, gives us an interesting observation i.e. Fractal nature of Indian markets.
Nifty made a low of 7,540 on 8th September and provided a strong pullback. Traders who showed nerves of steel (those who were not sucked into bearish bias on the street) got a perfect opportunity to come back into markets. So far we have witnessed a rally of more than 7% and the way broader markets have participated in the current pullback, it seems that serenity is back on Dalal Street.
The sharp rebound aside, 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.
If bulls are able to cement their position above the breakout levels of 8,450 for at least four trading sessions, we could see index get into a turbo mode. In a bull markets, corrections are more unrestrained. However, recoveries tend to be equally swift. For Nifty to attempt previous highs, spring bottom (support of 7,950) needs to be defended.
With strength in Oil & gas and pharma sector, the decline in Nifty has got arrested while broader index like CNX 500 is yet to confirm a bottom (though the selling pressure has stopped). Hence the composition of Nifty turns out to be better in assisting quick recovery and we feel that the stage is set for the key indices to surge higher towards 8,400.
The old adage Sell in May seems to have been ignored largely in second half of the month as the market left behind the carnage of March & April. . A move above the downward sloping trendline (above 8,550) would prove to be icing on the cake and market looks poised to see further build up after the gains of May.
Strength of every market is judged on corrections. After Monday’s turnaround it is important to observe that if the recovery turns out to be sluggish and market starts to give up gains, will it find support around 8,200 or not? As of now, it will act as a new support line for the bulls.
Barriers in life come and go but 8,350 is acting as a tough one since the third week of April. This consolidation at the bottom has taken shape of a bullish H&S pattern. A move above the same could result in reversal of the trend.