The markets suffered one of its worst drawdowns in the recent months as it opened low, grew weaker as the day progressed, and ended the day with a deep cut. The Russia-Ukraine conflict reached its peak with overnight airstrikes Russia on Ukraine; the US markets had already closed weak following this development. While inheriting this situation in the morning, the Indian equity markets opened significantly lower; they got weaker with the day. The NIFTY struggled at one point in time as it defended the 16500 levels for some time; once having violated this level, the index went on to test the 16200 levels. While showing no signs of any recovery, the headline index ended with a net loss of 815.30 points (-4.78%).
The markets have violated the 200-DMA which presently stands at 16894. The NIFTY has dragged its resistance points lower after violating this level; whenever the markets will see a technical pullback, this level will act as a resistance on a closing basis. There was also monthly expiry that happened this time; this remained quite painful as the NIFTY was unable to hold on to any level with heavy Put unwinding happening at all key levels. The next month has seen significant put writing happening at 16000 and 16200 levels; this indicates that while the NIFTY scrambles to find its feet, this zone may act as support unless there is a fresh heavy set of negative cues to deal with.
INDIAVIX witnessed a heavy spike; it surged 30.31% to a 20-month high level of 31.9825. NIFTY may see a shaky start to the trade; the levels of 16350 and 16400 are expected to act as resistance levels. The supports come in at 16100 and 16030 levels.
The daily RSI is 30.20; it is on the brink of getting oversold. The RSI has set a new 14-period high which is bearish; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and trades below the signal line.
A falling window emerged on the candles; this usually resolves in the direction of the trend. However, just like any other formation on the candles, this will require confirmation on the next trading day.
The pattern analysis shows that while the NIFTY has violated a couple of extended trend line supports, it has also violated the all-important 200-DMA on a closing basis. On its way up, this point is likely to pose serious resistance on a closing basis. The current breach has resulted in a breakdown of the index from a bearish descending triangle pattern.
All in all, the most prudent way to navigate such markets is to stay away from them. Not only leveraged positions should be avoided, but even new purchases should also be kept limited to an extent. Creating fresh shorts at current levels will not offer a safe risk-reward proposition at present. It is recommended that all declines should be used for making purchases in good quality stocks. Investors may not expose all their investible capital at once, but accumulation can be down with each incremental downside that the markets have to offer. A continued cautious approach 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)
