NIFTY had a very encouraging trading session, comfortably reclaiming its 20-day DEMA and breaking above its short-term resistance zone. Following a muted start, buyers took charge from the outset, triggering a sharp rally. After a brief period of consolidation around midday, the gains extended further as bulls continued to push prices higher. However, minor profit booking toward the fag end of the session led to a slight erosion of gains, with the index eventually closing at 22,997, up 1.66%.

Following today’s breakout, the technical structure has improved, with control appearing to have shifted in favor of buyers, at least for now. A consolidation breakout on the candle stick charts underscores the shift in control towards bulls. The setup on the Point & Figure (P&F) charts has also improved significantly, as price has moved above the 10-column moving average on the 0.1% daily P&F chart for the first time since September. Additionally, the index has triggered a Double Top Buy signal, further strengthening the near-term technical outlook. That said, the ongoing rally appears to be largely concentrated in the frontline indices, with broader market indices, particularly the MIDCAP and SMALLCAP indices, underperforming or closing in negative territory. Such divergence does not augur well for the overall health of the market. Unless the rally broadens to include meaningful participation from the broader market, the recent gains could remain vulnerable to a sharp reversal. Going forward, continue to advocate a buy on dips approach, and avoid chasing momentum to the upside, unless we see a cohesive participation. In terms of levels, the 22850-22750 zone, which was a prior resistance, is now likely to act as a support band, followed by a stronger support at the 22600-22500 zone. On the flipside, the 23100-23200 band is an immediate resistance, followed by a stronger hurdle 23400-23500 band.

Key levels to watch

NIFTY

Support: 22850- 22750

Resistance: 23100- 23200

BANKNIFTY

Support: 55600– 55250

Resistance: 56100– 56400

Hitesh Rathi, Technical Analyst -Equity & Derivatives, Angel One.