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A short covering rally appears quite likely today. The kind of recovery that happened in the Dow-from (-)290 to (-)20 in the end—last night suggests that short sellers would come in to cover their positions early on in the morning. However, the question that remains to be answered is whether such a rally would be sustainable or not.

The crucial level to watch out would once again be what we mentioned yesterday: the range between 4892 and 4898. Our understanding is that even if there were to be a sharp rally on the back of short covering it would not help the Nifty get past 4892 – 4898 range decisively. However, the journey to such levels could be quite spiky as evidenced by the sharp swing right at the open in either the Asian markets or in the May and June SGX Niftys at Singapore. The latter variety is up: the May Nifty is up by 51 points at 4867 and the June Nifty is at 4850 up by 55 points from their close yesterday. The Asian markets are anywhere between 0.50% and 1.50%.

This is very much on expected lines. With the number of declines going above 10 times that of the advances at the NSE yesterday, this is only to be expected. However, we would once again caution you all that the rally that you would see is just a pullback since the Nifty was down by nearly 90 points from its 5-day exponential moving average (MA) at 4915 at the close yesterday. Thus, a pullback towards that MA is all the more likely but the pullback is a pullback and nothing more. Expect selling to resurface once the reverse swing is through.

Thus, selling is more likely to happen if the Nifty were to scale up to those levels between 4892 – 4898 and by overstretching to anywhere close to 4915.

On the downside, the levels close to 4780 would act as a support and below that some demand is expected between 4745 and 4720.

Rajat K. Bose