The rally in the US was driven by renewed hopes that the Federal Reserve would pump more money into the system after Fed chief Ben Bernanke spoke to Congress on Friday. While he has said nothing new, it eased fears in the markets that the recent positive economic numbers in the US would not stop the Fed from easing some more.
The US and European markets do have an effect on Indian equities, but Nifty last week entered a bullish zone which will be the most important reason for the bounce. A bullish zone is essentially an area of support where the demand for an asset exceeds supply. This leads to a rally in price. A look at the chart gives us a clearer picture of the bullish zone.
The NIFTY opened the week on a negative note and traded southward throughout the week (ended 31 August). The Nifty recorded a high of 5,399, before declining to a low of 5,239 levels. It finally closed the week at 5258, with a loss of 128 points.
The index has penetrated the rising gap placed in the range of 5260 - 5220 (witnessed on 6th Aug 2012). Going forward, the index has strong support near 5200 levels. Since 50 per cent retracement and rising trend line are placed near that level (as shown in the chart). Trading below 5200, the index could decline further towards its long term moving average placed around 5120 levels.
On the upside, Nifty has resistance in the range of 5300-5320 levels. Trading above which, Nifty would head towards 5450 levels.
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