It was a bad start to the fresh week as the Indian equities grossly underperformed the global markets to end the day with a loss. The markets opened in contrast with the Asian peers that were trading on a flat to a mildly positive note. After opening marginally in the positive, the index marked the intraday high in the early seconds of the trade. Within no time it was in the negative territory; it stayed in the negative territory throughout the day. After spending the morning with limited losses, the selling pressure intensified and this took the NIFTY below the 16900 levels. Following a very modest rebound, the headline index ended the day with a net loss of 284.45 points (-1.65%).
The poor performance of the Indian markets had something more to domestic factors; the global markets, Asian, European, and also the Dow Futures continued trading with modest gains. Looking at the technicals, the lead indicators show a strong bullish divergence against the price; the futures data show a lot of new shorts also being added. The options data show the highest PUT OI at 16900; maximum Calls OI has been dragged lower to 17300, and this is followed by 17200. Importantly, the NIFTY has decisively violated the 100-DMA which stands at 17181 on a closing basis. This makes this point a resistance area in the event of any technical pullback taking place.
Volatility spiked; INDIAVIX surged by 8.79% to 20.0775. Tuesday is likely to see the markets trying to find a base if there is no overnight weakness to inherit. The levels of 17000 and 17085 will act as immediate resistance points. The supports come in at 17850 and 17790.
The Relative Strength Index is at 35.20; it shows a strong bullish divergence against the price. While the price closed at their 14-day low, RSI did not; this has resulted in a bullish divergence of RSI against the price. The daily MACD is bearish and below the signal line.
A large black body on the candles reflects the strongly bearish directional consensus among the market participants.
The market breadth remains terribly weak; only 1 stock in the NIFTY index closed in the green while 49 declined. The broader market breadth also remained weak. For Tuesday and for the coming days, defending 17900 levels become important again as violating this point will bring in weakness. There was some relative outperformance seen in the pockets like Oil and Gas, Pharma, PSE Stocks, etc., and this will likely persist for some time. We recommend avoiding any excessively leveraged positions even if a technical pullback occurs. Shorts should be strictly avoided as NIFTY is showing mild signs of a potential technical pullback. While staying away from large positions and avoiding shorts, a highly selective and cautious 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)
