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Why Monday’s closing would be pivotal for Nifty?

·3-min read

Nifty extended its northward journey for the fourth straight week and for the first time in this calendar year, the index recorded gains during a similar period. However, in the last week, the pace of upmove has receded as Nifty registered gains of less than a per cent. Having said that, the broader market outperformed the headline as Nifty Mid-cap and Small-cap logged gains of 2.92 per cent and 2.90 per cent, respectively. Even in Nifty, apart from select heavyweights from the IT space, most heavyweights remained range-bound. During the last week, the banking index underperformed significantly as it ended the week in the red.   

The week gone by was a historic one as Nifty for the first time touched the 15,800 mark and after a shakeout day on Wednesday, it resumed its upmove and logged a fresh all-time high of 15,835.55. However, it cooled off from the higher levels to end near the 15,800 mark. Technically, Nifty retraced exactly 127.6 per cent of its previous fall. It has formed a Doji pattern on the daily chart as the closing was near the opening level while on the weekly scale, it has formed a small body bullish candle with a long lower shadow.   

The formation of Doji near the 127.6 per cent of retracement of its previous fall exhibits some fatigue at higher levels for the index. We have used the word ‘fatigue’ and not reversal as the technical structure of the index is still strong and there are no signs that indicate weakness on the charts. Currently, Nifty is trading 2.47 per cent above the 20-DMA as well as 15.76 per cent above the 50-DMA. The distance from these short-term averages is also important to gauge the market stretch. In the earlier instances when the index had moved over about 4.5 per cent to 6 per cent away from its 20-DMA and nearly 20 per cent away from the 50-DMA, it has pulled back and reverted to mean. Hence, this indicates that some more steam is left in the index on the upside.   

Going ahead, the level of 15,550 is likely to act strong for Nifty in the near term while on the upside, the level of 15,835 may act as an immediate hurdle. A close above the 15,835 would mean that the index negates the implication of Doji pattern. On the other hand, a close below the low of Doji would mean that the bears have got their foot in the door.   

Moreover, on Monday morning, the first thing that the market is likely to do is to react to the IIP numbers. IIP surged 134.44 per cent YoY to 126.6 in the month of April 2021, primarily due to a low base in the previous year. However, more than opening, we would like to see the close of Nifty. This is due to the fact that we had mentioned earlier that a close above Friday’s high would negate the implication of Doji.

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