Traders likely to watch 50-DMA on Nifty like a hawk!

Last week was an interesting one! In each of the last five trading sessions, Nifty witnessed either a gap-up or a gap-down.

Interestingly, all these gaps were in the range of 100 to 250 points. Nifty had a gap-up opening on Monday, which was then followed by a V-shaped recovery for the three consecutive sessions. In the process, Nifty managed to surpass the swing high of February 25. However, in the last two trading sessions, Nifty witnessed a gap-down opening; as a result, it resulted in a failed breakout as the price did not sustain above the level of February 25. Despite the gap-down in the last two trading sessions, Nifty ended the week with a gain of 2.18 per cent on a weekly basis.

Technically, Nifty has been witnessing the formation of a lower high & lower low on the daily chart and along with this, it has breached its important short-term moving average i.e., 20-DMA. Though on the weekly chart, we have seen the formation of a bullish candle as the close of the week was greater than the opening of the week. However, the candle had a sizeable upper shadow, which clearly reflects selling pressure at higher levels and as a result, the bearish implication of the bearish engulfing, which was formed on the weekly chart a couple of weeks back, continued. 

Nifty is currently trading up by 2.42 per cent from its crucial 50-DMA. The 50-DMA has acted as a crucial support level since late October 2020. In the last week of February as well, Nifty took support around the 50-DMA and bounced back. Going ahead, the 50-DMA, which is placed at 14,585 is likely to act as good support for the index. For bearish confirmation, Nifty needs to close below this moving average for at least a couple of days i.e., after closing below this level, there should be a follow-up selling as well. As in the past, we have seen a follow-up selling missing after a breach of the moving average.  

Another important support around the level of 14,550-14,600 is placed, as defined by the rising trendline, on the weekly time scale, which is formed by connecting March lows. So, the level of 14,550-14,600 is a crucial support for the index in the near term. On the other hand, to resume the uptrend, the index needs to close above the zone of 15,176-15,273. 

Since gap-up and gap-down has been in the trend, its better for traders to avoid the overleveraged overnight positions in the coming week, and concentrate only on strong set-ups until & unless a clear trend emerges in the index for trading.