The equity markets woke up to a rude jolt following further developments owing to the ongoing geopolitical tensions between Russia and Ukraine which led to a very weak and gap-down opening in the market. The NIFT opened significantly on a lower note but the opening saw the index opening exactly at the 200-DMA. The remainder of the session was spent by the markets recovering from the lower levels. There were intermittent selling bouts in this recovery process, but by and large, the markets were able to recover the bulk of their losses. The headline NIFTY still ended the day with a net loss of 114.45 points (-0.67%).
We enter the penultimate day of the expiry of the current month derivative series. Apart from this, the sharp recovery from the 200-DMA further revalidates this point as major support for the markets on a closing basis. The 200-DMA presently stands at 17876. The NIFTY has violated the rising trend line support; on its way up, this pattern may act as a likely resistance for the markets. From the weekly options data, the level of 17000 saw significant call writing in the previous session. However, from the historical data, the levels of 17000 have maximum PUT OI concentration; the highest Call OI stands at 17500 levels. This indicates that if we do not have incremental overnight negative cues to deal with, the NIFTY may stay above 17000. If this happens, we may see the technical pullback extending itself a bit more.
Volatility spiked sharply; INDIAVIX surged 16.42% to 26.6625. Wednesday is likely to see the levels of 17200 and 17280 acting as possible resistance points; the supports come in at 17000 and 16880 levels.
The Relative Strength Index (RSI) on the daily chart is 43; it continues to remain neutral and does not show any divergence against the price. The daily MACD is bearish and below its signal line.
A large bullish candle has been formed on the charts. The occurrence of such a candle near the 200-DMA adds to the credibility and importance of this level as major support for the index on a closing basis.
All in all, the markets have once again averted a breakdown on the charts by bouncing off the 200-DMA which presently stands at 16876. However, given the fluid external factors, the markets may continue to exhibit volatility which is expected to be a bit wider in range. However, it is strongly recommended that creating shorts must be avoided in the present situation even if some drawdown is witnessed as this may lead to a sharp short squeeze; all such drawdowns must be used to pick up good quality stocks in modest quantities. A cautiously positive 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)
