In a very weak start to the week, the equity markets opened with a big gap-down, grew weaker as the day progressed, and ended with a cut despite some recovery from the lower levels. The geopolitical tensions just refused to go away; this massively impacted the sentiments that led to a weak and negative opening of the trade. After opening with a gap-down and slipping further, the NIFTY made its low point of the day in the late afternoon trade. After that, some recovery followed which saw the index rebounding over 200-points from its low point. However, the markets found it difficult to sustain that recovery got sold into. In the end, the benchmark index ended with a sizable cut of 382.20 points (-2.35%).
Monday’s session can be called a technically damaging one. Despite a lot of shorts that continue to exist in the system, Monday’s loss has certainly bought the immediate resistance points even lower for the NIFTY. Now, whenever a technical pullback occurs, it is bound to face very stiff resistance at the 16000-16200 zone as this is the important pattern support area that the NIFTY has violated. For Tuesday and the rest of the week, Monday’s low point of 15711 will be crucial to watch. If the NIFTY has to avoid further weakness, it will have to keep its head above 15700 levels. Volatility increased; INDIAVIX moved higher by 4.90% to 29.3300.
Tuesday is likely to see the levels of 15900 and 16090 acting as probable resistance points. The supports are likely to come in at 15760 and 15680 levels.
The Relative Strength Index (RSI) on the daily chart is 30.47; it shows a strong bullish divergence against the price. While the price made a sharply lower low, the RSI did not and this resulted in a strong bullish divergence. The daily MACD is bearish and below the signal line.
A falling window emerged on the candles; while this results out of a gap on the downside, it usually resolves in the direction of the trend. However, this will need confirmation; it would be wise not to take the reading for granted as this is caused by an external factor and the markets remain nearly oversold. In any case, confirmation is a must for such formations.
All in all, it is important not only to note but also to accept that since the markets are getting affected sentimentally because of external factors, they tend to defy technical levels. In such circumstances, the best way to navigate such markets is not to take any directional bias for granted. It may so happen that despite a strong gap on the downside, we may see an equally strong technical pullback given the kind of shorts that exists in the system. We recommend continuing to stay away from creating aggressive positions; all downsides should be used to picking up good quality beaten-down stocks. A continued cautious view 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)
