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The Nifty rose for second day in a row, the first time in a month. It gained 40 points to close above 10,500 levels on Monday. The RSI oscillator on the Nifty and the BankNifty charts has confirmed the positive divergence during the last week, where the price has made new low and oscillator formed a higher low.
This setup indicates that bears seem to have lost the dominance gradually and there could be a chance of a trend reversal for the short-term.
The long-term support derived from the trend line, adjoining the bottoms of Oct 2008(2252) and February 2016(6825) is placed at 10200 odd levels.During last week, Nifty violated this support but managed to close above that. So, the implication of the trend line support remains intact. Though, Nifty is currently trading below its 20, 50, 100 and 200 DMA.
It managed to close above its 5-days SMA on last Friday and therefore we should not rule
out the chances of a sharp pullback from current levels.
The 200-DMA for the Nifty is currently placed at 10,780 odd levels, while there has been an unfilled gap formed in the range of 10755-10843.
We believe that the index could extend the recent pullback towards 10,800, around which 200-DMA and Gap resistance coincides.
During the current October month, the BankNifty has clearly remained one of the outperformers where it gained by 1 percent while the Nifty fell by 4 percent.
RSI, Wave trend and Stochastic oscillators have exited from the oversold zone with positive divergence on the daily charts. During the last week, Bank Nifty closed above its 5 day SMA, indicating short term trend reversal.
A 200-DMA for the BankNifty is placed at 26,090, which can act as a short-term resistance. The support for the index has shifted upward to 24,900 odd levels, which can be kept as a stop-loss in the trading long positions.
We expect Bank Nifty to continue with its out performance in the short-term. In the Derivatives segment also, we have seen long positions being built in the BankNifty Futures’ during the current series.
Foreign institutional investors (FIIs’) also created fresh longs in the Index Options and Stock Futures’ during the last week. Amongst the Options, Puts have been written at 10,300-10,400 levels.
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