Nifty - Death Cross & RSI Bullish Divergence Analysis

As discussed in earlier post Nifty has been trying hard to bounce back but all attempts of bulls are going in vain and any bounce back is proving short lived. In Technical Parlance when 50 DMA moves below 200 DMA, such moving averages cross over is called Death Cross. As the name implies, a Death Cross is associated with sharp downward price movement and can be used as a sell signal in the belief that a significant downtrend will follow. However at the same time we can see the Bullish  Divergence of RSI on a daily chart. A bullish divergence occurs when the underlying security (Nifty) makes a lower low and RSI forms a higher low. RSI does not confirm the lower low and this shows strengthening momentum. Such Technical contradictions might create confusion for traders so an attempt has been made to give traders an idea as to how to take next move. 

So far we discussed Two Technical Factors viz. Death Cross & Bullish RSI Divergence. Now let's look at few other Technical factors to arrive at the final conclusion.

1. Nifty formed a Doji  Candle stick pattern on a daily chart during previous session and today managed to close above the same.

2. As per Options Chain 8000 PE is having slightly higher OI than 8000 CE Strike,  with liquidation seen at 8000 CE Strike.

3. Heavy OI built up at 7800 & 7900 PE Strikes suggesting strong base.

4. Heavy OI built up at 8200 & 8300 CE Strikes suggesting tough resistance zone.

5. VIX trading in the range of 15 to 18.

Conclusion : 

Considering the above picture it is quite evident that 7940 area has emerged as a strong support for the Nifty where demand comes in. So though there is a Death Cross as long as 7940 is not breached we may witness after shocks in term of minor pull backs in Nifty. On the other hand 8066 area is the stiff resistance zone where supply comes in and the darling starts reversal. Any close above 8066 and we may see a relief rally up to 8170-8192 levels in a short span of time. On the other hand close below 7940 will gave bears upper hand and the darling may commence its south ward journey and on the down side we may expect 7850-7830 levels in a short span of time.