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Nifty - Can heavy Short Covering Rally be a Trend Reversal in this Turcated Week?

The previous week was also a truncated week with 4 working days and the coming week is also a truncated week with only 3 working days for the market. On the last day of the week, the Nifty 50 Index was able to close in positive despite being subdued for the rest of the days in the week.


We knew that over the past many sessions, the markets were unable to take any major directional calls; however, this week saw the markets rebounding from the lower edge of the trading zone on the back of heavy short covering from the lower levels.


The good news is that over the past four sessions a few important supports were defended on the weekly charts;


But the caution note is that the trading range got a bit wider than usual and the Nifty 50 Index moved in a range of 467.85 points. Which is percentage-wise, a considerable range.



Nifty 50 Index - Daily Chart

In the Nifty -50 Index Daily chart, we have seen a gap up, on the last trading day of the financial year, which can be multiple causes like buying by mutual fund houses to keep NAV up on the last day of the financial year and short covering by prop desk.



Nifty 50 Index - Weekly Chart

The Nifty 50 Index Weekly chart, hurridly crossed above and made a bridge between 50 SMA and 100 SMA, as soon as it crossed below 100 SMA, the previous day. We can say it is only due to heavy short covering, and it can continue this week also, because this week has only three trading days, and in absence of any bad news, bulls can force short sellers to cover their short positions till the level of 17800. We need to remember there is a lot of resistance present between 17500 to 17800.


Nifty 50 Index - Monthly Chart

As we discussed in one of our previous technical journals, three crows red candle pattern failed to bring a big bullish candle in the month of March 2023, but we can not deny that it ends up with a DOZI candle, which shows that index managed itself to stop being dragged down further from month's low level. This is still a situation of indecisiveness and can not confirm that the market will go up further, in the coming month without any good corporate results announcements.



Outlook for the NIFTY 50 Index for Coming Week starts from 3rd April -2023


As we know that the Nifty 50 Index managed to defend the 100-week moving average, on a closing basis, so it becomes immediate support for the coming weeks.


The Nifty has also closed slightly higher above its 50-Week Moving Average. The

The 100-week moving average is placed at 17104 and the 50-Week Moving Average is currently placed at 17320. Both weekly moving averages can work as support at least for the coming week.


Besides this, the index has also defended the pattern support that exists in the form of a falling trend line. The strong up-move that has come on the last trading day of the week has been fueled by a short covering-led rally; this is evident as the

NIFTY Futures have shown a decline in Net OI along with the rise.


We need to remember, that FIIs are still holding their short positions in the future, which is approximately 1.35 lakhs at the average level of 17419. The Nifty 50 index closed slightly below that level. If they want to defend this level, they have to sell their cash holding, because a short position is still banned by SEBI, and if this not happened, and if they decide to book loss, then they have to close their existing positions, which spurt the bullish rally in future and then the market can go beyond 17800-18000 levels.


Here is the trading activities for FIIs and DIIs. We need to focus on figure of the column "FII Index Future OI" where 135.1 K short positions are still open


Support Level for the Coming Week for NIFTY:


As per technical charts, we can see the support coming from the level of 17180 and it breaks decisively, then 17000 is the next support level to be watched before it drifted further down.


Resistance Level for the Coming Week for NIFTY:


We can see the resistance level could be 17450, followed by 17530. The upside is capped in a wide range itself.


The trading zone for the NIFTY 50 Index is between 16900-17500; unless either of these levels is taken out or violated, we will see the index oscillating in this range.


We will need to keep in mind that the Options data suggest the markets facing resistance at 17500 levels.


INDIA VIX:


The volatility cooled down considerably. India VIX, the fear index fell 15 percent to 12.93 levels.

It is best recommended to avoid aggressive bets and approach the markets on a highly selective note as persistently low levels of VIX can leave traders exposed to volatile profit-taking bouts from higher levels.


It is recommended to continue keeping leveraged exposures at modest levels while approaching the markets on a highly selective and stock-specific note. Thanks for reading. Keep Trading Stay Invested Regards, Neeraj Bhatia (Managing Director) https://www.crbpvl.com/ Disclaimer: I am not a SEBI Registered technical Analyst, so consult your financial advisor, before taking any trade. This technical post is only for learning purposes.









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