Gemstone Equity Research & Advisory Services

Tuesday Trade Setup: NIFTY May See Some Technical Pullback; The Are The Group Of Stocks You Should Focus On

While putting up a  very weak show, the Indian equity markets disregarded the favorable and stable global trade setup and ended the day with a deep cut. The markets opened on a modestly negative note but soon declined at a rapid pace. The first two hours of the session saw the NIFTY taking a sharp 300-point cut while moving below the critical intraday supports. After that, the Index spent the remaining part of the session in a capped range. Some small amount of recovery was seen from the lower levels, but that also got sold as the NIFTY ended near its low point. The headline index closed with a net loss of 313.60 points (-3.43%).

The banks and financial stocks remained particularly weak on expected lines. The India Volatility Index, INDIAVIX, also spiked by 7.62% to 40.9150. Given the steep decline, the markets now stare at an imminent pullback. Some positive opening can be expected on Tuesday, but as usual, these technical pullbacks should not be chased to make purchases. The NIFTY has now shifted its resistance for the immediate short term even lower to the 50-DMA.

Tuesday will see the levels of 8895 and 8945 acting as immediate resistance points. The supports will come in at 8805 and 8710.
The Relative Strength Index (RSI) on the daily chart is 41.28; it has marked a fresh 14-period low, which is bearish. RSI remains neutral as it does not show any divergence against the price. The daily MACD has shown a negative crossover; it is now bearish as it trades below its signal line. A big black body emerged on the candles. The large size of the body depicts the bearish grip on the session by the participants.
The pattern analysis shows that the NIFTY has expectedly resumed its down move after falling out of the rising wedge pattern and spending some time in a defined range. The resistance has now shifted at lower levels. In the immediate short-term over the coming days, the NIFTY will find resistance at 50-DMA, which presently stands at 9244.
All in all, the markets may see some technical rebound as the deeply hammered stocks and sectors might see some relief rally. However, at one point in time, the broad technical setup is likely to dominate, and the upsides will continue to remain capped. To make fresh purchases, it would be more risk-rewarding if we focus on those stocks where are not the Index constituents or belong to the group, which is either relatively out-performing or has a strong relative strength against the markets. A continued cautious view is advised for the day.

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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