It was an encouraging start to the week for NIFTY, as buyers successfully defended key support levels and thwarted an early-session selling scare. After opening slightly lower and witnessing some initial selling pressure, the index staged a sharp recovery from the day’s lows. However, mid-day profit booking threatened to wipe out the gains made earlier in the session. Once again, demand at lower levels helped stabilise prices and trigger a recovery, enabling the index to close at 22753, up 0.68% for the day.

Following the sharp reversal witnessed last week, which erased all the gains made during the preceding week, market sentiment has turned somewhat tepid. However, the repeated emergence of buying interest at lower levels, particularly in the 22,300–22,400 band, indicates the presence of strong underlying demand. Furthermore, oversold readings across several breadth and technical indicators suggest a relatively low probability of an extended down move in the immediate term. Derivatives indicators also reinforce this view, with the PCRs at the 22500 and 2,600 strikes highlighting strong demand at lower levels. That said, given that all trends remain aligned to the downside, and prices continue to trade below all key EMA’s, participants should categorically avoid chasing momentum to the upside and instead look to buy dips to strong support bands. In terms of levels, the 22500-22380 band is an immediate support band, followed by a stronger support in the 22200-22100 band. On the flip side, 22800-22850 is an immediate hurdle, followed by a stronger resistance at the 23000-23100 band.

The severe profit booking observed in MIDCAP and SMALLCAP universe last week, has distorted their technical set ups significantly, and also signalled some reversals in the ratio charts of this indices, when plotted against the NIFTY50. Going forward caution should be adhered to, will entering into short term trading bets in the MIDCAP and SMALLCAP stocks.

Key levels to watch

NIFTY

Support: 22500- 22380

Resistance: 22800- 23000

BANKNIFTY

Support: 54000– 53800

Resistance: 54500– 54850

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