In the previous technical note, it was mentioned that there are larger possibilities of the markets staging a technical pullback. Quite on the anticipated lines, the NIFTY staged a strong technical pullback; in the process, it validated certain levels as intermediate support levels for the near term. The NIFTY opened on a positive note and it stayed positive throughout the session. For the first half of the day, while staying positive, NIFTY protect all its gains but remained mostly in the sideways trajectory. The second half of the session saw the NIFTY getting stronger; it moved past the crucial 17900 levels. The headline index finally ended the day with a net gain of 258 points (+1.46%).
Tuesday’s session is set to be important from a technical perspective; it would be imperative for the NIFTY to scale past 18000 levels and keep its head above this point. The 18000 level was the lower edge support of the broad 18000-18600 trading range that the markets had formed for themselves. So long as the NIFTY stays below 18000 levels, it will remain prone to some more consolidation. In other words, the price action of NIFTY against the levels of 18000 will be crucial to watch for. The move has been on the account of short-covering as it resulted in a minor decline in Net Open Interest in NIFTY futures. It would be interesting to see if this is replaced by fresh buying.
A silent start to the day is expected; NIFTY is likely to find resistance at 18000 and 18090 levels. The supports come in at 17880 and 17800 levels.
The Relative Strength Index (RSI) on the daily chart is 51.02; it is neutral and does not show any divergence against the price. The daily MACD is bearish and trades below the signal line. A large white body emerged on the candles; this reflects the directional consensus of the market participants on the downside.
The pattern analysis shows that after violating the lower edge support of 18000, the NIFTY has rebounded after going very near to the 50-DMA. The 50-DMA is presently at 17592 and remains crucial support in the near term. With the 18000 being the support level that was violated, it may pose resistance to the Index when it pull back.
All in all, given the present technical structure, NIFTY’s behavior vis-à-vis the levels of 18000 will be crucial to watch. For this technical pullback to continue, it will be very important and necessary for the NIFTY to move past the 18000 levels. So long as it stays below this point, it will remain vulnerable to profit-taking bouts and consolidation. Action in the markets will remain highly stock-specific. Regardless of the sector that they belong to, we will see select relative outperformance coming in from stocks from the Midcap universe, PSE, select banks, and Auto along with Oil and Gas. We recommend avoiding shorts and continuing downsides, if any, to make select purchases in modest quantities.
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)
