In the previous note, it was mentioned that creating fresh shorts out of panic may not be a good way to navigate the current volatility. While trading precisely on the expected lines, the markets staged a strong short-covering led rally which subsequently led the markets ending with strong gains. NIFTY opened on a positive note and grew stronger as the day progressed. The NIFTY marked its high point of the day in the late morning trade. After that, it largely maintained its gains while trading in a sideways trajectory and oscillating in a limited range. The benchmark index finally ended the day with a strong gain of 410.45 points (+2.53%).
The global markets have continued to see the technical pullback getting extended. This will have us inheriting a strong global trade setup on Monday. There is a possibility of a gap-up opening on Monday and the technical pullback that we saw on Friday is likely to be extended further. As of now, the NIFTY is still below the 200-DMA which presently stands at 16903. The expected gap-up opening is likely to see the NIFTY opening on or above this point. Furthermore, the maximum Call OI for this week’s options expiry also stands at 17000 levels. This means that the NIFTY is likely to open right inside the resistance point; the intraday trend that is developed after the opening will be crucial to watch on Monday.
The markets are likely to see the levels of 16800 and 16930 acting as resistance points. The supports come in at 16600 and 16510 levels.
The Relative Strength Index (RSI) is 39.63; it is seen rebounding off from the oversold point. RSI is neutral and does not show any divergence against the price. The daily MACD is bearish and below the signal line.
The pattern analysis shows that the NIFTY has violated the upward rising trend line; it has also slipped and closed below the 200-DMA which presently stands at 16903 levels. On the way up as the technical pullback occurs, both these levels may pose resistance to the markets.
All in all, with a near-certain gap-up opening likely on Monday, it would be prudent not to chase such a gap on the upside. It would be wise to let the markets stabilize and develop some directional bias for the day. The opening of the markets is expected right near the resistance point. So, it would be important to see and wait for the intraday trend to get developed. The high beta names that were beaten down most in the last week are likely to see pulling themselves back in an equally strong way. We may see select banks, autos, metals, and infrastructure stocks see an extension of the pullback; along with this some defensive play in the consumption and IT groups can also be expected.
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)
