Gemstone Equity Research & Advisory Services

Wednesday Trade Setup: Even If Pullbacks Occur, NIFTY Vulnerable With Each Rise; Resistance Shifts Lower

In the session that worked out perfectly on the anticipated lines, the NIFTY finally succumbed to a corrective move after resisting to the 200-DMA for several days. The Markets saw a negative opening and stayed in the negative territory for the entire session. At no point in time did the Index showed any tendency to bounce back as it traded in a declining territory for the whole day. The headline index slipped below the 10600 level, and eventually closed with a net loss of 195.35 points (-1.81%).

As mentioned in our previous editions, the volatility had tested it’s one of the lowest levels which is not a good sign as it denotes complacency of market participants. After this decline, the INDIAVIX shot up by 5.48% to 26.3675. Tuesday’s session has reinforced 200-DMA, which currently is 10881 as a major resistance for the immediate near term. The market breadth remained extremely weak as 46 of the NIFTY’s 50 stocks ended with losses.

Given the kind of fall that we saw on Tuesday, a minor pullback cannot be ruled out. The levels of 10635 and 10670 will act as resistance points. The supports will come in at 10550 and 10470 levels.

The Relative Strength Index (RSI) on the daily chart is 59.15; it has marked a fresh 14-period low which is bearish. RSI is neutral as it does not show any divergence against the price. The daily MACD has shown a negative crossover; it is now bearish as it trades below its signal line.

A large black body emerged on the Candle. This is a significant formation, especially when it has occurred below the 200-DMA. The appearance of such a candle reinforces the credibility of 200-DMA as a strong resistance point.

The decline of markets in the Tuesday’s session is a clear long unwinding from higher levels and it has not happened just because of any addition of fresh shorts. This is evident as the decline in the previous session has come with a decline of over 5.73 lakh shares or 4.98% in net Open Interest of the NIFTY futures. There are chances that mild pullbacks may happen in the, but they are equally likely to get sold later. In the event of any pullback, if at all they occur, they should be used for making exits as NIFTY has sharply shifted its resistance points lower. A cautious view is advised for the day.

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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