Gemstone Equity Research & Advisory Services

Friday Trade Setup: Technically Weak NIFTY May Have Limited Pullbacks; Broader Picture Requires These Levels To Be Watched

In the previous note, it was mentioned that the NIFTY’s short-term technical structure stands damaged, and the resistance points have been dragged much lower. The markets saw a negative opening and the losses got sharply wider as the day progressed. By afternoon, the NIFTY had slipped below 14300 at one point in time. The second half of the session saw the Index attempting a sharp recovery. It managed to recover over 200-points from the lows. However, this recovery was not sustained as the NIFTY pared all those recovered points. The headline index settled with a net loss of 224.50 points (-1.54%).

Because of the monthly derivative expiry and also the weekly expiry of the options, the session stood highly dominated with rollovers as well. From the technical perspective, the NIFTY’s short-term chart structure stands damaged. Unlike the earlier buy on dips theory, we may see sell-on-rise theories playing in the markets. The NIFTY has again dragged its resistance down to 14675 which is in the form of the extended trend line support that the NIFTY violated over the past two sessions. On the way up, this would act as resistance. Volatility rose modestly with INDIAVIX rising 1.07% to 22.6975.

Friday’s session will see NIFTY’s behavior against the 14350 level extremely important and trend-deciding over the coming days. This is the low formed on 19th March which triggered a sharp short-covering move in the market. NIFTY will have to move pas this point to avoid weakness. The levels of 14365 and 14450 will act as resistance points; the supports come in at 14280 and 14200 levels.

The Relative Strength Index (RSI) on the daily chart is 38.26; it has made a new 14-period low which is bearish. RSI is neutral and does not show any divergence against the price. The daily MACD is bearish and stays below the signal line.

A black body emerged; with open and high on the NIFTY being almost the same, it reflects the unanimous behavior and the directional consensus of the market participants.

All and all, the NIFTY has a strong support at 14024, which is, at present the 100-DMA for the Index. This level also near to the 20-Week MA which is at 14113 at present. So, the zone of 14000-14100 represents a very strong support zone for the NIFTY. Aggressive shorts should now be avoided. We reiterate staying highly stock-specific while making purchases and keep 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)

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