It was mentioned in the previous technical note that given the overextended nature of the markets, some consolidation at current or higher levels cannot be ruled out. After an unabated move for more than a week, the Indian equity markets finally saw some corrective move taking place. Following a positive start to the day, the NIFTY saw a sharp paring of gains of 185-points from the morning high point. However, until late afternoon trade, the NIFTY managed to recoup all these points. The last hour and a half again saw the NIFTY facing a corrective pressure and came off over 150-points again. It finally settled with a net loss of 58.30 points (-0.32%) over the previous close.
From the technical perspective, the second time that the markets pared and gave up their recovery is important; it has marked Tuesday’s high point of 18600 as a potential short-term top for the markets once again. Now, over the coming days, unless the levels of 18600 are taken out convincingly, NIFTY has once again pushed itself in a broad consolidation range of 18000-18600. The options data show high Call writing taking place between all strikes between 18600-18800 levels. The level of 18600 has the highest accumulation of Call OI as per the weekly options data and this point will continue to pose resistance for the markets.
Volatility surged a bit; INDIAVIX rose by 1.15% to 17.3815. Wednesday is likely to see the levels of 18465 and 18520 acting as resistance points. The supports come in at 18350 and 18310 levels.
The Relative Strength Index (RSI) on the daily chart is 74.58; it remains slightly overbought. RSI is neutral as it does not show any divergence against the price. The daily MACD is bullish and above the signal line.
A large bearish engulfing candle appeared. This has appeared near the high point following a strong uptrend. The occurrence of such a candle in these technical conditions hints at the formation of a probable intermediate top for the markets 18600 levels.
Overall, looking at the present pattern analysis of the charts, it is pretty evident that the markets have taken some imminent and overdue breather and NIFTY has pushed itself into some consolidation within a wide defined range. Having said this, it is also important to note that aggressive shorts in the markets must be avoided as no major long unwinding was witnessed. It is recommended to curtail overall exposures and leveraged positions, long or short, and continue approaching the markets with a highly selective approach for the day.
This was first published by The Economic Times.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)
