Sensex: How Far the Rally Can Last?

  • Stock Market Analysis

After a very sharp selloff in the previous week, the broader markets have returned to calm. However, that does not mean that the trend has turned positive, only the intensity of the fall has been reduced.

The benchmark Sensex index had already breached its major support level of 64,800 on 23 October 2023, which had turned the medium-term trend to a negative one. This was a major support because the index had witnessed buying pressure from here several times in the past.

Image Description: Daily chart of Sensex (spot)

Image Source: Investing.com

Now, the current retracement, which had propelled the index from the low of 63,092 to the high of 64,452 should only be considered as a bounce from the oversold territory. On the day, the low was marked, RSI (daily, 14) had tanked below 30, denoting an oversold status to the index, therefore, a technical bounce should have been expected.

Now, the maximum level till which we can witness this counter-trend rally is around 64,800, due to the polarity principle. This principle states that when a support is breached, it becomes resistance in the subsequent rallies and vice versa.

Hence, those looking to play long should not eye for targets above 64,800, which is still some 750 points distance from the CMP of 64,050, as of 10:06 AM IST.

However, as the trend is negative, short trades are more suited to the current regime. The zone of 64,800 - 65,000 would likely pose a stiff resistance and it is where short trades might be executed in big scores.

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X (formerly, Twitter) - aayushxkhanna

Read More: Reversal: This Bullish Divergence is Catching Bulls’ Attention

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