Nifty trend for Tuesday
The feeble cues from the Asian peers and SGX Nifty were indicating a turbulent start for Nifty on Monday; however, against all odds, Nifty opened the session in green and kept marching higher to end the session above yet another milestone mark of 13,350.
As we expected, the tight range breakout has given a sharp move. The price action of the day formed a sizeable bullish candle, carrying a higher high & higher low with increased participation from the broader market. The index has already closed above the upper Bollinger Band on the weekly timeframe for the fourth consecutive week in the last week. Now, on the daily chart as well, the price has scaled above the upper Bollinger Band and the bands are setting up for an expansion. Usually, when the price breaks above the upper Bollinger Band and both, the upper & lower band is expanding, then the probability of a further movement is high. Hence, the set-up indicates that the stage has been perfectly set for Nifty to embark towards our earlier mentioned target of 13,534 in the near term.
Having said, there is a resistance placed in the region of 13,400-13,420, which is defined by the upper channel line of the ascending channel on the 60-minutes chart. We think that the bulls may take a pause around this level before reaching their destination of 13,534. Even though the RSI has broken out of a downward channel, it has reached an overbought condition on the lower timeframe. The stochastic oscillator is in an extremely overbought zone. Also, if one digs into the open interest data of Nifty Futures (December 31, 2020), there was about 2.40 per cent shed in the open interest, and usually, shedding of open interest and the rising price of security indicates a short covering.
One interesting point is that the price-to-book value ratio of Nifty is 3.75 and after the global financial crisis, Nifty has reacted lower whenever it attempted to reach the levels closer to 4.
On the downside, the support for Nifty is seen around the levels of 13,240 and until the index actually starts closing below the previous day’s low, dips are likely to attract buying.