On a very weak and disappointing day of the trade, the NIFTY opened with a gap down, stayed weak throughout the day, and ended with a deep cut. The markets opened on a gap down following the weak global trade setup; the NIFTY stayed in a falling trajectory throughout the session. At no point in time, it show any intention to recover as it kept marking incremental low points. The index breached the 15800 levels; it went on to close with a loss of 359.10 points (-2.22%) towards the end.
The levels of 16000 were expected to act as support for the markets; however, the markets saw themselves opening much lower than this point. The NIFTY has also violated the trend line support as evident on the charts; at the same time, it has now turned the support area of 16000-16100 into a resistance zone following the violation. The NIFTY has dragged its resistance levels lower; in the process, it has now gotten oversold on the daily chart. The possibilities of a technical pullback remain imminent, but for that to happen, there has to be no overnight weak trade setup for the markets to handle.
Friday is likely to see the levels of 15890 and 15965 acting as resistance points. The supports come in at 15760 and 15680 levels.
The Relative Strength Index (RSI) on the daily chart is 27.18; it stays neutral and does not show any divergence against the price. It however trades in the oversold zone after marking a new 14-period low. The daily MACD stays bearish and below the signal line. A large black body emerged on the candle; this shows a strong directional consensus among the market participants on the downside.
All in all, the technical structure continues to remain predominantly weak. In the same breath, the markets are now oversold, and shorting the markets may not offer a good risk-reward proposition as well. Apart from this, such as the artificial and structured behavior of the markets is that the intraday range is not big enough for the traders to trade the index. After a gap up or down, the Index has shown a tendency to stay in a narrow and defined range.
The Indian Rupee made a fresh low against the greenback; this usually pares out good for the IT stocks. It is strongly reiterated that while avoiding shorting the markets, one can continue focusing on those stocks whose relative strength is getting better and are among the traditionally defensive group. A selective approach is advised for the day.
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)
