The equity market witnessed a robust short covering on Thursday, as the Nifty ended the session with a decent gain of 122.60 points or 1.22 per cent.
This imminent pullback was mentioned in the note for Thursday. However, the interesting part of Thursday’s session was that despite a very large number of open interest, the rise of 122.60 points has resulted into only a minor reduction of OI.
Going into trade on Friday, though we expect a quiet start, we expect the follow-through rally to continue with the levels of 100-DMA acting as important support.
The levels of 10,200 and 10,265 will act as immediate resistance levels for the market. Supports come in at 10,075 and 10,020 zones.
The Relative Strength Index (RSI) on the daily chart is 45.0210 and it remains neutral while holding on and reversing from its Double Bottom support.
The Daily MACD is still bearish, as it trades below its signal line. A Big White candle emerged and it is significant, as it has emerged near the strong support area of 100-DMA.
The pattern analysis confirmed the validity of the support of 100-DMA, as the markets recovered after a minor breach, and by not violating its filters.
Going further from here, in most likelihood, a fresh Intermediate Area Pattern in form of a falling channel is created and we may see the market behaving in this formation.
All in all, the resultant formation of the intermediate pattern in form of a falling channel is likely to inflict lower tops in the market.
However, as of now, we expect the pullback rally to see follow-through on Friday and expect it to continue. We continue to see stock specific performances coming out from auto, infra and financial services stocks.
We continue to recommend making select purchases while avoiding shorts and also protecting profits at higher levels.
STOCKS TO WATCH: Good technical set-up is observed in stocks like DHFL, Ashok Leyland, Vedanta, Tata Steel, L&T Fincance Holdings, Kotak Bank and Federal Bank. We may see these counters trading with positive bias.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)