Technicals - 4 consecutive up gaps in 3 weeks on the FSSTI

The FSSTI has formed 4 consecutive up gaps over a space of 3 weeks. There is no historical precedence for this since 2007. Today, the index has gapped up and it appears to be an exhaustion gap. The gap at 1761-1765 is in the process of being covered. The next gap is at 1664, which preceded a sharp rally. We would label this as a runaway gap. Prices typically move to cover runaway and exhaustion gaps. In fact, since the beginning of the year, all gaps on the FSSTI have been covered. We see no reason as to why it will be any different, this time. We also note that RSI at current levels is higher than that during the previous peak at 1960.

Another reason to be cautious stems from the fact that the FSSTI has retraced 62% (a key fibonacci retracement ratio) of the decline from 1960-1454. The volatility on the rebound is significantly higher than during the decline suggesting that the rebound is not sustainable.

We peg first support at 1664, the first gap level, and the next at 1616, a 50% retracement level.

K Ajith