How long can this pullback sustain?

After trading in a tight range of 212 points for the first four days, NSE Nifty gained 128.55 points or 0.74 per cent, with a massive rally on Friday. BSE Sensex is up by 0.58 per cent. The Nifty Midcap-100 rallied by 1.97 per cent, and the Smallcap-100 index is down by 0.6 per cent. On the sectoral front, the PSU Bank index gained by 9.75 per cent, and the Realty index is up by 8.29 per cent. The Nifty IT was down by 2.28 per cent, and Pharma declined by 1.79 per cent. The advance-declines ratio is negative for the week.

The Nifty turned up after eight consecutive declines and nine bearish bars. The pullback is on expected lines, as the historical fact supports our argument. The index oscillated around the 200DMA and closed just below the 200EMA. It retraced 38.2 per cent of the prior downswing. Importantly, the index honoured many historical facts and price points. It bounced after the longest streak of decline. This is a normal pullback, as we expected last week. Now, the question is, how long can this pullback sustain?

The Nifty opened with a gap down on Monday and oscillated in just 200 points range, around 200DMA for the four days. It failed to close below 200DMA for two consecutive days. On Friday, the 272-point bounce was just because of short covering. Another important reason is that the RSI is came out of a squeeze area on an hourly chart. This bounce needs to close above the 22nd February gap area, which is 17827. Before this crucial resistance, there was resistance like 20DMA (17704) and the previous day's high (17645). Probably, in the next 2-3 days, price action will be limited below this resistance zone. Any decisive move above 17827 next means bulls is regaining strength. The slopping channel resistance is at 17857-65, which is also the 50DMA. In a normal market condition, if the price is above the 50DMA, it has better relative strength.

In a downtrend, the pullback rallies mostly end at 50 or 61.8 per cent retracement levels of the prior downswing. The 50 per cent retracement level is at 17695, and the 61.8 per cent retracement level is at 17798. These levels are similar to the gap area and the 20DMA. This confluence of resistances 17645-827 zone will be a herculean task to cross.

The Nifty took support at slopping trendline support, which drew from October 2021 high. It was also able to protect the 50 and 40-week averages. After a big bearish engulfing candle, the hammer kind of candle at the support shows consolidation is possible above the 50-week average and the 50DMA for one or two weeks before taking a decisive directional bias. The weekly RSI is at 47.68, in a neutral zone. The MACD is below the signal line, and the histogram shows bearish momentum. Importantly, the MACD line is declining is a concern now.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)