Is it a ‘dead cat bounce’ or another round of rally ahead? Here’s what analysts have to say

Domestic equity markets extended their gains for the second straight session on Tuesday following positive Asian cues. Some support also came with the southwest monsoon entering Madhya Pradesh, Chhattisgarh, coastal Andhra Pradesh, Odisha, West Bengal, Jharkhand and Bihar on Monday, cumulative rainfall deficiency so far has been reduced to 5 per cent from 25 per cent reported on June 16.

The BSE Sensex traded 753 points, or 1.46 per cent, higher at 52,350.94 at around 11.40 am (IST) on June 21. Likewise, the NSE Nifty index was up nearly 260 points, or 1.69 per cent, at 15,609 at around the same time. Earlier, the benchmark equity indices halted a six-day-long losing streak on Monday, though fears of aggressive rate hikes and their impact on economic growth kept investors on the back foot.

Is the domestic equity market set for another round of rally or Tuesday’s gain of over 1 per cent is a dead cat bounce?

Sharing his views with Business Today, Milan Vaishnav, founder and technical analyst, Gemstone Equity Research said, “I do not think this is a dead-cat-bounce and there are several reasons that support this.”

He added that first, the present pullback has occurred following the development of a strong RSI (relative strength index) bullish divergence against the price.

“While the Nifty was forming lower bottoms and while it tested its most immediate low point near 15,180, the RSI was not seen forming lower lows; such divergences from a lead-indicators generally have a high success rate when it comes to the formation of a potential bottom,” he added.

Vaishnav further added that there were other classical factors present as well. There was a strong bearish engulfing pattern that occurred following a downtrend. That had a classical potential of being a last such bearish engulfing pattern which indicated a potential reversal point. Also, some shorts existed in the system as well. “The options data also support this view. There has been strong Put unwinding from 15,200-15,500 levels and 15,500 seeing the maximum Put Unwinding,” Vaishnav said adding all this point at this may not just be a dead cat bounce but a strong attempt by the markets to put a potential bottom in place.

However, he added that the confirmation is awaited as the Nifty faces strong resistance in the 15,700-15,900 zone.

Another technical analyst, Nirav Chheda of Nirmal Bang Securities believes that the market should witness a good bounce but selling will keep coming back. However, he feels this bounce should extend to 16,000.

Santosh Meena, head of research, Swastika Investmart said, “Post a major correction from 16,800 to 15,183, the market has witnessed a short-covering rally. However, a major pullback can be expected only above 16,000 levels.”

Also Read: RBI bars non-bank PPIs from loading credit lines; details here

Also Read: Elon Musk's transgender daughter seeks name change