Gemstone Equity Research & Advisory Services

Outlook For Tuesday: Technicals Remain Weak For NIFTY; This Zone Will be Difficult To Navigate

The Indian markets had a negative day, but the markets traded precisely on the expected lines. We had expressed a concern that the overnight weak closing on the US Markets may see the weakness getting extended in Asian markets as well but we may also see improvement as we  go ahead in the session. The Indian markets did see a gap down opening but at the same time recovered from the morning lows and recouped bulk of its losses. After a recovery which was more prominent in the last hour of the trade, the headline index ended the day with a net loss of 70.60 points (-0.68%).

Despite the markets trading perfectly on the anticipated lines and recovering in the last hour of the trade, the NIFTY is not structurally out of the woods and remains prone to weakness at higher levels. The zone of 10350-10500 remains a stiff resistance zone for the markets and NIFTY will remain vulnerable to profit taking even if it sees some intermittent up moves. Unless the NIFTY moves past 10500 convincingly, we will see highly stock specific action in the markets.

The last hour up move is unlikely to get extended in the next trading session. Tuesday may see a tepid start to the day and the zone of 10350-10500 will be crucial resistance zone to watch over the coming days. The NIFTY is likely to find resistance at 10350 and 10435 on Tuesday; supports will come in lower at 10235 and 10160.
The Relative Strength Index (RSI) on the daily chart is 61.29; it stays neutral and does not show any divergence against the price. A bearish divergence on the RSI continues to persist beyond the 14-day period. The daily MACD is bullish as it remains above its signal line.
A Doji emerged on the candles. This is a second Doji formation on the consecutive day, and this makes inherent technical bias a bit bearish. Dojis have a potential to mark a reversal or at least halt an ongoing trend.
The pattern analysis shows the NIFTY turning weak within the rising channel that it has been trading in over the past couple of weeks. The index has shown a tendency to revers without reaching the upper end of the channel; thereby showing a formation of a lower top within the channel which is a distinct sign of a weakness.
The markets have stayed rangebound over the past couple of sessions. It is likely to stay range bound unless it witnesses any corrective move. The upsides will remain capped but any move on the downside is likely to make the range wider than usual. We recommend continuing to approach the markets cautious and avoid aggressive purchases at any levels.
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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