In a largely disappointing session which can almost be called a “meltdown”, the Indian equity markets got swamped with a big corrective move; this move was fuelled by growing geopolitical tensions between Ukraine and Russia. The NIFTY saw a gap-down opening; after opening lower, it only got worse as the markets grew weaker. The NIFTY went on to violate the psychologically important 17000-levels and fell well below it. The markets showed no intention to recover; the headline index finally closed with a net loss of 531.95 points (-3.06%).
The recent corrective move has not only inflicted structural technical damage on the charts, but it also placed the markets at a very crucial juncture. The recent move has seen the NIFTY testing the 200-DMA; the index has closed a just notch above this major support level. The 200-DMA presently stands at 16798. All sector indices ended in the red; the worst performing sectors were the economy-facing ones. The financials, banks, media, and Metals fell in the range of 4% to 5%. This means that if the NIFTY slips even a little further and stay below the 200-DMA, it is bound to invite incremental weakness in the near term. Again, seeing this from a different perspective; to avoid a breakdown, it would be critically important for the NIFTY to crawl back above the 16900-17000 zone.
Tuesday is likely to see the levels of 16900 and 17000 acting as potential resistance points. Supports exist at 16750 and 16680 levels.
The daily RSI is at 37.33; it has marked a new 14-period low which is bearish. A bit worse, the RSI is also seen violating a support trend line ahead of the NIFTY; this may potentially turn out bearish unless the NIFTY crawls above the critical 16900-17000 zone. The daily MACD is bearish and below its signal line. A falling window occurred. This resulted in a gap down; such formations resolve in the direction of the trend subject to final confirmation on the next bar.
The weekly options data reflect weakness and less possibility of a significant recovery. The levels of 17000 and 17100 has seen a lot of Call writing and Put unwinding taking place. On the other hand, the highest Put OI has shifted lower to 16500 levels. All this means that the index has dragged its resistance points much lower; the levels of 17000 will pose resistance if the NIFTY tries for any technical pullback. Amid such liquid circumstances, it is recommended that purchases may be kept limited to defensive stocks only; even better if exposures are avoided unless the markets show some signs of stability and geopolitical tensions reduced. While avoiding taking major trades, a highly 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)
