Trade Setup: Trade Setup: All fresh purchases must be highly stock-specific and defensive in nature
Following a weak overnight trade setup, the Nifty opened on a weak note– a much weaker note than expected. The markets suffered another gap-down opening, but they spent the bulk of the session recovering from the opening lows. At one point, the Nifty had recovered most of its losses however, some last hour paring of the recovery saw the headline index closing with a net loss of 109.40 points (-0.67%).
There are chances that the markets may try and find some footing in an attempt to form a temporary base for themselves. The most immediate low point, i.e., the previous low point of 16,142, is expected to act as a reference point in terms of the most immediate support for the markets.
16,000-16,150 zone will be the most crucial support zone to watch if we look at things from the most immediate and short-term technical perspective. The markets have continued to pile up shorts for the fourth day in a row — the Nifty current month futures have added over 1.41 lakh shares or 1.30% in net Open Interest.
Volatility surged a bit — India VIX rose 3.68% to 22.0325. Tuesday is likely to see the levels of 16,435 and 16,550 acting as potential resistance points. The supports come in at 16180 and 16110 levels. The trading range is expected to get wider than usual.
The Relative Strength Index (RSI) on the daily chart is 33.73. It has continued to mark a fresh 14-day low which is bearish. However, RSI is neutral and does not show any divergence against the price. The daily MACD is bearish and stays below the signal line.
A spinning top emerged on the candle; its occurrence near the potential support area might act as a temporary reversal point for the markets. However, this would require confirmation on the next trading day.
All in all, it is evident that the markets are scrambling to find a potential base for themselves; given the addition of fresh shorts over the past four sessions, a strong technical pullback at any point in time cannot be ruled out. It is recommended that creating fresh shorts in such markets must be avoided as short traps can occur at any time.
The Nifty stares at an imminent and overdue technical pullback; while avoiding shorts, all fresh purchases must be kept highly stock-specific and defensive in nature. A cautiously positive outlook is advised for the day.
Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at [email protected]
