Nifty overcame early volatility to rally above 8700, snapping the four day losing streak to close nearly 6 percent higher. The hope of a stimulus from government to cushion the economy from the coronavirus fallout and positive global cues lifted sentiment.
Finally, the bulls appear to have found some solace, as the index registered consistent intraday rally and formed a large bullish candle resembling a Long White Day formation on daily chart and Nifty forms bearish Candle on weekly chart.
After opening higher at 8284, Nifty turned volatile but immediately gained strength to extend rally as the day progressed and hit the day's high of 8883.
As it is a sell on rally market due to a lot of pessimism created by the coronavirus outbreak, the index has to close above 5 Day exponential moving average (which is placed at 8846) to show technical strength.
Despite the strong upward thrust by closing above 5day exponential moving average, sustainability of this move remains doubtful as it can be on the back of factors like short covering ahead of the expiry week and lower level value buying, which may not usher in a decent pullback due to the presence of external volatility.
Further strength towards 9127 could be expected if the Nifty sustains above 8891 in the next trading session. In case if it once again closes below 8263 level, then weakness shall resume.
If one has under-allocated to equities, this is a god-sent buying opportunity. Staggering the purchase over the new few weeks would be the ideal thing to do. Notably enough, this is a good time to buy tax-free bonds, given the likelihood of slashed systemic rates, in response to the crisis. If an investor has an ongoing SIP, closing it would amount to sacrilege. On the contrary, one should increase the amounts if possible.
Nifty has formed morning star like candlestick pattern on the daily chart, which is considered as a bullish reversal pattern. Now, we might see some pullback towards 8900 and above that, it may move towards 9500. But the medium-term trend continues to remain negative as long as Nifty trades below 10700 mark.
It was the fourth consecutive week of big pain for the stock market investors but there was a minor relief on the last day. Coronavirus has become a black swan event which is resulting in both life and financial crisis and this is the main reason for the steepest fall in the market.
If the situation improves from here then we can expect a bargain buying in the market which may lead a smart rally in the coming days but if the situation worsens from here then the pain will continue for the market players.
Traders to wait for at least one more positive close before considering short term positions on long side.
All the sectoral indices ended in the green with IT and FMCG index rose more than 8 percent, followed by the Energy, Infra, Metal, Auto, and Pharma. Midcap and Smallcap indices closed with 4 percent gains.
- Someshwar, Technical analyst, Equidius Research