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Trade Setup For Monday: NIFTY May See A Mild Technical Pullback; Picking Right Stocks Important Because Of This

The corrective mood of the Indian equities continued to persist as the markets ended in the red for the fourth day in a row while extending its losses. The markets saw a negative opening, but it soon crawled back inside the positive territory. The markets, however, did not say long in the positive zone, and slipped back in the negative. The Index traded with capped and limited losses until afternoon. However, the final hours of the trade saw the profit-taking wave getting stronger as the NIFTY saw an intensified decline. However, post recovery of some 80-odd points from the low point, the headline index ended with a net loss of 137.20 (+0.91%).

Despite a structural setup that is may cause some corrective mood to continue, the Index is a bit oversold on very short-term parameters. This may some minor technical pullback to happening initially. However, following any expected pullback, the upside potential stays capped and limited as of now, at least until this expiry unless a tactical shift of momentum occurs. While the NIFTY may face stiff resistance between 15200-15350 as per options data, the NIFTY PCR stays healthy at 1.19. In any case, moving past 15000-mark and staying above it is crucial for the NIFTY not just for Monday, but for the rest of the week.

Monday may see a modestly positive start to the day. The levels of 15000 and 15115 may act as resistance points. The supports come in at 14900 and 14860 levels.

The Relative Strength Index (RSI) stands at 58.02; it remains neutral and does not show any divergence against the price.  The daily MACD has shown a negative crossover on the expected lines; it is now below its signal line and bearish. A black candle emerged; apart from this, no significant formations are seen on the charts.

The pattern analysis shows that the pattern resistance drawn in the form of a short-term trend line holds as the NIFTY has slipped below that point. The Bollinger bands are wider than usual; this hints at the increased volatility and the probability of the markets returning to its normal range.

All in all, the need of the hour is the approach the markets on a highly selective note. The reason is – among all high beta names, there are many stocks that are showing distinct bearish divergences from their lead indicators. On the other hand, there are certain pockets of stocks, regardless of the sectors that they belong to, are showing short base formation along with the bullish divergences on their lead indicators. All this translates into picking the right stock and in the process staying highly stock specific and selective. We recommend all technical pullbacks, in the process, to protect profits at higher 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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