Market Outlook: Expect profit-taking as Nifty nears 200-DMA; key indicators in overbought zone

Mumbai: The markets exhibited some amount of volatility in trades today, before ending on a positive note as key benchmark indices traded in overbought territory. While global cues were mixed the sentiment remained positive on the back of current strong uptrend in the market.

The BSE benchmark index, the Sensex, opened with a positive gap of around 170-odd points at 36,660. Volatility in the morning trades saw the BSE index slip into red to a low of 36,271 – down over 200 points from the previous close. The BSE index, however, recovered swiftly led by financial shares. The Sensex then jumped to a high of 36,723, and finally settled with a gain of 187 points at 36,675.

Among the Sensex 30 stocks, Bajaj Finance soared nearly 8 per cent followed by IndusInd Bank up 6 per cent. Bajaj Finserv, Infosys, ICICI Bank, Axis Bank, HCL Technologies, Asian Paints and Maruti advanced 2-5 per cent each. On the flip side, Tata Steel, PowerGrid, ITC and NTPC dropped over 2.5 per cent each. ONGC, Mahindra & Mahindra, UltraTech Cement, Bajaj Auto, Bharti Airtel and Reliance were the other prominent losers, down around 2 per cent each.

Also Read: Market Outlook: Markets in overbought zone; 10,750 is pivot point for Nifty

On Tuesday, the BSE Sensex came within striking distance of the weekly Fibonacci R2 level at 36,745, and then retreated a wee bit. Given the current overbought condition, one needs to focus on resistance levels at weekly R2 and R3 followed by the monthly R3 at 36,745, 36,915 and 36,990, respectively. The bias for the week will continue to remain positive as long as the BSE index holds above 36,250-level.

As per the daily Fibonacci charts, on Wednesday, in case of an up move the BSE Sensex is likely to face resistance around 36,850-36,900-36,950, and in case of a down move, the BSE index is to seek support around 36,500-36,450-36,400.

The NSE Nifty ended at the 10,800-level and is now less than a mere per cent from its 200-DMA (Daily Moving Average) around 10,885. Given the overbought conditions, it would be prudent to expect some profit-taking around the 200-DMA. However, since the market trend is strong corrections could be short-lived and quite choppy. It is quite possible that the Nifty may retreat after crossing the 200-DMA either tomorrow or in the next few trading sessions.

Among the key momentum oscillators on the daily charts, the DI (Directional Index) along with the ADX (Average Directional Index) continues to remain in favour of the bulls. The Slow Stochastic is showing some signs of tiredness, while the MACD (Moving Average Convergence Divergence) remains inconclusive. The 14-day RSI (Relative Strength Index) is in an overbought zone.

Disclaimer: The views expressed in this article are personal and for information purpose only, it does not advocate any buy or sell /recommendation.