In yet another sluggish and corrective day, the NIFTY ended on a negative note despite staying resilient for the most part of the day. Following a weak global setup, the markets opened lower; however, it soon managed to crawl in the positive territory as it showed resilience to weaker peers. The NIFTY marked its high point when it went briefly into the positive territory. After that, it slipped in the negative zone again but remained in a defined and narrow trajectory. Weakness got somewhat intensified in the last hour and a half of trade as the markets slipped lower. The headline index finally ended with a net loss of 100.55 points (-0.56%).
We enter the expiry of weekly options on Thursday; it will also be the last day of the trading week as Friday will be a trading holiday on the account of Gurunanak Jayanti. The present technical structure also continues to stay precarious for the near term as the NIFTY is dealing with a potentially bearish Head & Shoulders pattern. NIFTY will remain prone to this pattern’s bearish implications until and unless it moves past 18150 convincingly. It is also important to note that the neckline of this formation coincides with the 50-DMA which presently stands at 17842. Therefore, staying above 17850 on a closing basis will be crucial for the NIFTY to avoid any extended weakness.
Thursday is expected to see the levels of 17950 and 18090 acting as potential resistance points. The supports come in at 17850 and 17780 levels.
The Relative Strength Index (RSI) on the daily chart is 48.38; it is neutral and does not show any divergence against the price. The daily MACD is bearish and below the signal line. A candle with a long upper shadow occurred. Usually, this kind of candle has bearish implications, but since this has occurred following a downtrend and near a potential support area, it should be ignored and not interpreted in isolation.
All and all, the NIFTY is still trapped within a potentially bearish Head & Shoulders and for the NIFTY to avoid any weakness, it will have to keep its head above the 50-DMA which also coincides with the neckline of the present pattern and stands at 17842. The options data suggest the highest Call OI accumulation at 18200 followed by 18000 levels. This means that if the NIFTY see a strong opening and stays above 18000 levels, it can invite some short covering from lower levels. In any case, we recommend staying away from creating any aggressive positions, long or short, until a directional bias on either side is established. A cautious outlook 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)
