Much on the anticipated lines, the NIFTY staged a strong pullback after a negative show in the previous session. In the last technical note, it was mentioned that the NIFTY had a lot of short positions as these shorts may lend support to the markets at lower levels. The markets opened with a gap down; but on the expected lines, spent the day recovering from the lower levels. For the most part of the session, the index traded with limited losses; the pullback grew stronger towards the end of the session. The NIFTY closed with just a minor loss of 33.45 points (-0.20%).
From a technical standpoint, the highlight of the previous session was the ability of the NIFTY to keep its head above the crucial 17000 level. As per the options data, this level continues to hold the highest amount of PUT OI; this is likely to lend support unless this point is comprehensively violated. On the higher side, the maximum Call OI exists at 17500. The markets shall open after a gap of one day; Tuesday was a trading holiday on account of Eid. Though the NIFTY will adjust itself to the global trade setup, it remains largely stable. However, independent of the global trade setup if we look at just the technical levels, then keeping its head above the 16850-17000 zone will be extremely crucial for the NIFTY to avoid any weakness.
Wednesday is likely to see the levels of 17135 and 17220 acting as potential resistance levels. The supports come in at 17000 and 16910 levels.
The Relative Strength Index (RSI) stands at 46.17; it stays neutral and does not show any divergence against the price. The daily MACD is bearish and stays below the signal line. A strong white candle appeared on the charts. Its appearance not only showed the directional consensus of the market participants, but it also showed the credibility of the support zone where it occurred.
All in all, regardless of the direction of the NIFTY move in the either way, the markets continue to remain in the congestion zone defined by the 16850-17500 area. This 650-point zone is something that will not allow the markets to take any sustainable directional bias. A trending move will occur only if the higher level is taken out or the lower one is violated. Until then, regardless of the gap-up or gap-down openings, the markets will stay largely in a range.
It is strongly recommended that one continues to stay highly stock-specific while approaching the markets. A defensive approach with curtailed leveraged positions will prove to be highly risk-optimized given the present technical setup of the markets.
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)
