Technical indicators kindle hope of rebound

technical indicators, including the 100-week exponential moving average (EMA) and the FII long-short ratio, are currently signalling the market may be oversold and poised for a potential short-term rebound.

After a decline of 15% since October 1, Nifty gained 1.15% on Wednesday. The Nifty Midcap 150 and Nifty Smallcap 250 indices gained 2.43% and 2.71% respectively on Wednesday. Both indices plunged 20% and 25%, respectively, since October 1 through Tuesday.

Other technical gauges, such as the 38.2% Fibonacci Retracement level, the 14-period daily relative strength index (RSI), and the 20-period disparity index, also point to shortening odds of a rebound in the indices. The RSI witnessed a turnaround after touching a four-year low reading of 21.79. The Index FII Long short ratio is improving after touching a low of 11.11% currently at 16% long and 84% short suggesting that the FIIs are reducing index shorts — a bullish sign.

According to analysts, the market is likely to witness some buying in the coming days, driven purely by technical indicators and historical data trends. “Since 2015, the RSI has tested the 25-20 zone six times, and each instance was followed by the market forming a short-term bottom,” said Sudeep Shah, head--technical & derivative research, at SBI Securities.
“The 20-period disparity index is currently hovering near the 4% level and whenever this ratio entered the 3.5-5% zone, the market often found a temporary bottom.”

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