For the second day in a row, the Indian equity markets consolidated and ended the day with mild gains. The NIFTY has tried very hard to keep its head above the support zone of 15700-15750 which also happens to be important pattern support as well. The NIFTY had a buoyant start to the day; it opened positive and got stronger as the day progressed. The NIFTY marked its high point in the early hours of the trade. The Index started to pare its gains, and by afternoon it slipped briefly into the red. It crawled back inside the positive territory, but the gains continued to remain limited. The benchmark Index NIFTY50 closed with a modest gain of 60.15 points (+0.38%).
From a technical perspective, the support zone of 15700-15750 is getting more important with each passing day. After the initial test of this support zone, the NIFTY has defended this level for two days in a row as of now; it is also important to note that this level is also important pattern support in form of a Double Bottom for the markets. It would be very important for the markets to keep their head above this crucial support zone of 15700-15750 if it has to get any meaningful technical pullback. In other words, any violation of this zone will make the markets weaker.
Tuesday is again likely to see a stable start to the day. The levels of 15930 and 16065 are likely to act as potential resistance levels. The supports come in at 15750 and 15700 levels.
The Relative Strength Index (RSI) stands at 28.86; it does not show any divergence and stays neutral against the price. RSI also is in the oversold territory below 30. The daily MACD is bearish and stays below the signal line. A Doji emerged on the candles; an occurrence of a Doji near the support area makes a case of a potential reversal which will require confirmation on the charts. Also, given that the body of the current candle is engulfed by the body of the previous candle, this also shows a formation of a Harami pattern.
All in all, the markets are trying hard to find a potential point of reversal as it stares at a long-overdue technical pullback. The oversold nature of the markets raises the possibility of a pullback taking place; however, this can get delayed if we have overnight negative cues to deal with. It is important to note that shorting the markets must be avoided due to unfavorable risk-reward ratio; instead, all consolidation moves or retracements must be used to pick stocks on a highly selective basis. It is reiterated that one must continue to approach the markets cautiously on a selective note while keeping leveraged exposures at modest levels.
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)
