Nifty saw a gap-down start. After opening lower, it only got worse as the markets grew weaker. The index went on to violate the psychologically important 17,000-levels and fell well below it. The markets showed no intention to recover; the headline index finally closed with a net loss of 531.95 points (-3.06 per cent).
The recent corrective move has not only inflicted structural technical damage on the charts, but it also placed the markets at a very crucial juncture. The recent move has seen Nifty testing the 200-DMA. The index has closed a just notch above this major support level. The 200-DMA presently stands at 16,798.
All sector indices ended in the red. The worst performing sectors were the economy-facing ones. Financials, banks, media, and metals fell in the range of 4-5 per cent. This means that if Nifty slips even little further and stays below the 200-DMA, it is bound to invite incremental weakness in the near term.
Again, seeing this from a different perspective, to avoid a breakdown, it would be critically important for Nifty to crawl back above the 16,900-17,000 zone.
Tuesday is likely to see the levels of 16,900 and 17,000 acting as potential resistance points. Supports exist at 16,750 and 16,680 levels.
The daily RSI is at 37.33; it has marked a new 14-period low which is bearish. A bit worse, the RSI is also seen violating a support trend line ahead of Nifty. This may potentially turn out bearish unless Nifty crawls above the critical 16,900-17,000 zone.
The daily MACD is bearish and below its signal line. A falling window occurred. This resulted out of a gap down. Such formations resolve in the direction of the trend subject to final confirmation on the next bar.
The weekly options data reflect weakness and less possibility of a significant recovery. The levels of 17,000 and 17,100 has seen lot of Call writing and Put unwinding taking place. On the other hand, the highest Put OI has shifted lower to 16,500 levels. All this mean that the index has dragged its resistance points much lower. The levels of 17,000 will pose resistance if Nifty tries for any technical pullback.
Amid such liquid circumstances, it is recommended that purchases may be kept limited to defensive stocks only. It is even better if exposures are avoided unless the markets show some signs of stability and geopolitical tensions reduce. While avoiding taking major trades, a highly cautious outlook is advised for the day.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at [email protected])
