In a disastrously weak session, the Indian equity markets put up a gross underperformance against the global markets again and ended the day with a deep cut after a greatly volatile session. The NIFTY saw a gap-down opening; after a gap-down start, the markets showed no intention to recovery. The selling pressure got overwhelming and the NIFTY went on to violate the key support levels rapidly. The index went in just 100-odd point striking distance from the 200-DMA. However, some respite was seen in the second half of the trade; the index saw some recovery of 200+ points from the low point of the day. Despite this recovery, the headline index ended with a deep cut of 371 points (-2.18%).
The market breadth was pathetic; only 3 out of 50 NIFTY stocks ended in the green. Also, the selling was so heavy given the FII selling that it was evident in the F&O data as well. The NIFTY current month futures saw net open interest shedding of 6.21 lakh shares or 5.69%. This reflects long unwinding as the shedding of OI has come with the decline. However, it also needs to be seen that the lead indicators show a very strong bullish divergence; there are all probabilities that Monday’s low of 16410 may have become a potential base for the markets. It would be interesting to see if fresh buying comes in at current levels.
Volatility spiked intraday; on a closing basis, INDIAVIX rose by 16.08% to 18.9650. Markets may see a shaky start to the day on Tuesday; the levels of 16690 and 16765 may well act as potential resistance levels. The low point 16410 will be the most crucial support level to watch for not just for Tuesday but for the coming days as well.
The Relative Strength Index (RSI) on the daily chart is 32.22; it shows a very strong bullish divergence against the price. The price is marking sharply lower lows but RSI is not doing so. This has resulted in a strong bullish divergence against the price. The MACD has shown a negative crossover; it is now bearish and below the signal line.
All and all, the approach to the markets is pretty simple. On a short-term basis, the selling is overdone; this is reflected in the way the NIFTY rebounded from 16410 levels. There are greater chances of this low point being held as a hard and potential low for the immediate short-term. To interpret this in other words, if the markets still do not rebound which is now overdue, it would be best to stay away from the markets rather than adding shorts. Adding shorts will have a very adverse risk-reward ratio and that should be best avoided. A highly cautious view 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)
