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Trade Setup For Tuesday: NIFTY Slips Below This Short-Term MA; Mild Technical Pullback May Not Be Ruled Out

The fear of fresh lockdown amid rising COVID-19 cases across India instilled a sense of fear in the markets. Amid such hurt sentiments, the Indian equities opened lower, drifted further during the day, and ended the day with a deep cut. The overnight global setup was not so weak, and the Asian markets traded modestly positive. The Indian markets opened on a flat note; it stayed in positive territory for a very brief period and slipped in the red. The entire session was spent in downward falling trajectory and the markets remained firmly in grip of session pressure. The NIFTY showed no intention to recover and finally ended the day with a deep cut of 306.05 points (-2.04%).

The strongly bearish sentiment and reaction of the market participants that was out of fear was very much evident in the volatility. The volatility spiked as the INDIAVIX rose by 14.47% to 25.4700. The NIFTY made a large bearish candle and also slipped below its short-term support of 20-DMA which presently stands at 14773. Going ahead from here, the NIFTY now stays evenly placed. The options data show the NIFTY exactly in middle of the support and resistance for this week. The NIFTY PCR across all expiries stands at 0.99; it lays some ground for some technical pullback as well.

There are chances of Tuesday seeing some technical pullback happening in the markets. The NIFTY has come off nearly 700-odd points from the high point; this makes some modest case for a technical pullback. The levels of 14745 and 14830 will act as resistance points; the supports come in at 14650 and 14580 levels.

The daily RSI is 48.42; it has made a fresh 14-period low which is bearish. RSI, however, is neutral and does not show any divergence against the price. The daily MACD is bearish as it trades below its signal line.

The pattern analysis shows that the NIFTY has resisted not only to the extended trend line drawn from the lows seen in March 2020, but it has also slipped below the short-term pattern resistance. In the process, it has made the levels of 15431 an intermediate top for the near term.

The US Dollar index has not been so strong; however, it has failed to have its desired effect as the rising US Bond yields have also contributed to disrupting the rally to some extent. Considering the extremely short-term technical perspective, some technical pullback from the current levels cannot be ruled out. We recommend staying away creating excessive exposures. Also, fresh shorts should be avoided now as the markets have some good number of shorts already existing in the system which may lead to some short covering leading to a technical pullback. It would be prudent to keep fresh buying highly selective and in modest quantity while continuing to adopt an extremely cautious view on 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)

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