Nifty runs out of oxygen at Mt 6,200

Strong resistance around 6,100-6,200 levels forces benchmark index to retract four times this year

Despite four attempts this year, the Indian market has not been able to scale new all-time highs due to strong technical resistance. The benchmark NSE Nifty is facing critical resistance around 6,100-6,200 levels, from where it has retracted four times this year and several times since it touched a record high of 6,312 on November 5, 2010.

Technical analysts say traders rush to book profits whenever the Nifty moves above 6,100 levels due to lack of conviction that the market can sustain there.

“Time and again, it has been seen that the 6,100-6,200 band is acting as a very strong resistance for the Nifty. Every time the supply (selling) exceeds demand as traders are very more than willing to book profits,” said Shubham Agarwal,  senior analyst- technical equities, Motilal Oswal Securities.

Added Hemant Nahata, senior research analyst at IIFL: “At 6,100 levels, the risk reward ratio reduces considerably. Traders exit their position to see if the Nifty can break out from its previous highs.”

On a technical basis, breaking of previous all-time highs convincingly is considered a bullish signal. Analysts said if the market is able to cross and consolidate at 6,200 or 6,300 levels, it could move up sharply. “If the resistance levels are taken off by a decent margin and the market is able to hold for some weeks. The overall trend might change and we could see a sharp rally,” said Agarwal.

For the Sensex, it hasn't been able to sustain above the 20,000 levels. However, unlike the Nifty, it has, at least, surpassed its immediate previous high.

Last week, following the US Federal Reserve’s announcement on continuing its bond-buying programme, the Sensex climbed to 20,646.6, which was its highest level in nearly three years, while the Nifty touched 6,312.5, not even a four-month high. However, experts say it has more to do with the composition of the indices.

 

Analysts said the market had been in a consolidation phase for the past six years and a breakout could even take the Nifty over 7,000. However, for the Nifty to break the 6,200 levels would be difficult, given the weak economic fundamentals and more importantly with the general elections looming.

“Whenever, you have a big event lined up, it becomes difficult to break out a particular zone. For that, you need certainty, which isn't there with election around the corner,” said Nahata.

But some technical analysts feel the chances of the Nifty breaking above 6,200 have increased this time. This is because the extent of fall in the Nifty after hitting 6,200 has been declining in the last four occasions.

“The Nifty has been hitting higher lows every time it has touched 6,200 and fallen,” said A K Prabhakar, senior vice-president, Anand Rathi Financial Services. “This is a positive sign because it shows market is a lot more resilient that earlier.”

Prabhakar said the possibility of Nifty crossing the 6,200-mark remains as long as it stays above the 200-day moving average (DMA), a popular technical measure, which is used to analyse long-term price trends. The Nifty fell 18.60 points or 0.32 percent on Wednesday to close at 5,873.85, off the day’s low of 5,811.10.

Broadly, when a stock or an index falls below 200 DMA is a bearish sign, while a rise above this level is considered positive.