50-plus RSI hints at bullish trend

The Nifty continued to find support around the 3,600-level and it closed the week forming a bullish candle. Continued support at these levels could see the index rising further to test the 3,750-level. The daily relative strength index (RSI) of over 50 also indicates bullishness. The RSI value of 50 is a key level. Above 50, it is considered to be an indication of a bullish trend, and below 50, it is considered bearish.

The Nifty has been volatile and trading in the range of 3,620-3720 in the last couple of days. According to markets analysts, market volatility within a tight range is seen as the last hurdle before the start of a bull run. The index has found support around 3,600, but could not sustain above the 3,700-level. The sell move above 3,680 was largely triggered by foreign institutional investors (FIIs) who were booking profit in index futures at higher levels.

The Nifty futures, however, continue to trade at a premium to spot. Despite a weekly trading volume of 169 million shares, open interest (OI) has increased marginally by 196,850 shares. This indicates that traders have covered their shorts but are shy of taking fresh long positions, wary of poll results.

Options traders were seen buying the 3,600-3,700 strikes calls, while a few others were unwinding their positions at the 3,800 call options. The 3,900 and 4,000 calls added significant open interest on Friday, indicating that traders were taking positions in out-of-the money calls on expectations that the index may move up to higher levels once it closes above 3,800. Options traders expect the Nifty to get support at 3,600 on rising open interest in put options at this level.

Technically, the markets are just not ready to break the support level. Until that happens, it only makes sense to ride the uptrend with strict stops. On daily and weekly charts, the markets continue to be overbought with bearish triggers. However, the indices could test medium-term resistance levels of 12,500/3,800.