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Outlook For Friday: NIFTY May Stay Structurally Weak; Fresh Shorts May Induce Intermittent Pullbacks

The markets took a sharp corrective note on the day of weekly options expiry and ended the day with a sizable cut. The overnight development of the Federal Reserve keeping the key rates unchanged was not received positively by Asian markets on the next morning. The Indian equities opened modestly lower, but during the day, stayed in the secularly falling trajectory. It failed to show any intent to recover during the day and the decline intensified in the second half of the session. The NIFTY gave up the psychological level of 10,000 and went on to close at 9902 with a net loss of 214.15 points (-2.12%).

The maximum Put OI which was 10000 at the start of the day gradually shifted to 9900 and this ensured the NIFTY not breaching this level on expiry. The volatility rose marginally as India Volatility Index, INDIAVIX, went up by 0.76% to 29.6600. Today’s session confirmed the zone of 10250-10350 as a strong resistance zone in the immediate short-term. This zone becomes a sacrosanct resistance for NIFTY for the coming days.

The ending of the markets near the low point might result into some continued downsides. However, given the fresh shorts, we will see intermittent pullbacks as well in the Index. Friday is likely to see the levels of 9950 and 10030 as overhead resistance points. The supports will come in at 9860 and 9805 levels.
The Relative Strength Index (RSI) on the daily chart is 58.02, it stays neutral as it does not show any divergence against the price. The daily MACD is bullish as it trades above the signal line. However, while examining the slope of a histogram, it appears to be sloping downwards which suggests diminishing momentum on the Index. A big black body emerged on the candles. It signifies a strong momentum on the downside throughout the session.
The pattern analysis shows that the NIFTY continues to remain in the upward rising channel after the rising wedge got resolved on the upside. Presently, it resisted to the upper rising trend line of the channel and to the 100-DMA on a closing basis. The 100-DMA presently rests at 10229.
The NIFTY has added good amount of Open Interest on the futures; this is evident as the NIFTY June Month Futures OI increased by 4.33 lakh shares or 4.14%. The increase in OI along with the decline in the NIFTY shows that fresh shorts have been added to the Index. In the present technical setup, the NIFTY may see some mild pullbacks from the current levels. However, they will continue to remain limited in its extent as the NIFTY has shifted its resistance zone lower to 10250-10300 levels. In the event of any up moves, moderate purchases may be made with vigilant protection of profits at higher levels.
Milan Vaishnav, CMT, MSTA
Consulting Technical   Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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