It was a weak day for the Indian equities; the markets opened lower, got weaker as the day progressed, and ended the day on a negative note. The markets opened with a minor gap down; the NIFTY marked its intraday high point in the opening minutes of the day. With the markets opening below 18000 levels, it slipped further and went on to test its key support levels. The NIFTY did see some recovery from lower levels as the markets recovered over 75-points. However, the headline index ended the day with a net cut of 143.60 points (-0.80%).
The session remained dominated with weekly options expiry. The levels of 17800 had a maximum accumulation of Call OI; this prevented the NIFTY from slipping below that point. Apart from that, more important was the fact that the NIFTY once again went close to the 50-DMA and rebounded a bit from there. The 50-DMA, which is presently at 17775 is a very important near-term support on a closing basis to watch for. Any violation of this level will send the markets in an intermediate corrective trend. The markets also face a formation of potentially weak Head & Shoulder formation. Unless the NIFTY climbs above 18150, it will remain prone to weakness from every technical pullback that it may witness.
Friday is likely to see the levels of 17950 and 18000 acting as immediate resistance points. The supports come in at 17800 and 17770.
The Realtive Strength Index (RSI) on the daily chart is 48.42; it is neutral and does not show any divergence against the price. The daily MACD is bearish and stays below the signal line. No major formations were noticed on the candles.
The pattern analysis shows a formation of a potentially bearish Head & Shoulders pattern. Although this is not a classical H&S pattern as it is rising and has an incline, it certainly has the potential to infuse some weakness in the markets and push the Index in an intermediate corrective trend if some key support levels are violated.
Importantly, we must not interpret the present formation as a bearish one. It also needs to be read along with other technical levels. The formation of the necklike of the H&S pattern coincides with the 50-DMA which presently stands at 17755. So even if the NIFTY sees some decline, it will not get weaker so long as it is able to maintain a close above the 50-DMA.
We recommend not creating any positions in “anticipate” of any trend. We recommend continuing to stay light on positions until the NIFTY takes a directional trend. Until this happens a continued cautious and selective approach is advised for the day. Profits must be protected on either side until a clear trend is established. A cautious outlook is advised 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)
