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Nifty Registers New High but Faces Sharp Correction

The Nifty index reached a new high during the mid-week, but global geopolitical tensions caused a significant correction on the last trading session. As a result, the index gave up all its weekly gains to end just above 22,500.

Regional Tensions Impact Equity Markets

The increase in tensions between Israel and Iran led to volatility in equity markets worldwide, including the Nifty. On Friday’s trading session, the index experienced a sharp correction. However, despite this correction, Foreign Institutional Investors (FIIs) formed long positions in the index futures during the last week. Their net “long-short ratio” currently stands around 55 percent.

Outlook and Important Levels

Although there was some unwinding on Friday, the RSI oscillator on the daily chart of Nifty has not yet crossed into negative territory, and the index has not breached its important short-term supports. Therefore, the current down move is seen as a correction within an uptrend, which could be a retracement of the recent upmove or a time-wise correction.

However, it’s important to note that the index has turned negative from its significant resistance level of 22,750, which was the 127 percent retracement of the recent corrective phase and also coincides with the rising trendline hurdle. To resume the uptrend, the index needs to surpass this hurdle.

On the downside, the immediate supports are placed around 22,570 and 22,380. Only if these levels are broken, the index could slide towards the 40-day exponential moving average at 22,200.

Given the high volatility due to global news flows, traders are advised to exercise caution and trade with limited exposure.

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