There was a wide-spread underperformance in the equity markets across the world, and Asia and India were no exception. Following negative global cues, the Indian Markets opened with a gap down and drifted even lower to end the day with a significant cut losing 181.75 points (-1.69%).
US Markets were shut to honor the past president George HW Bush who passed away last Friday. It was expected that we will not have to deal with the overnight action in the US Markets and the 200-DMA which was 10749 will hold. However, the gap down opening saw the Markets opening below 200-DMA and it drifted lower. A feeble attempt to recover was made but that was sold into as well.
As we approach Friday's trade, it would be extremely crucial for the Markets to defend the 10572. This is also a very important pattern support, and the 50-DMA for the NIFTY. The pattern support is in form of an upper trend line of the falling channel that the NIFTY had created and eventually moved higher while breaking out of it. We expect a soft start to the trade tomorrow but also expect this level to lend support.
Friday is expected to see the levels of 10655 and 10720 acting as immediate resistance while supports come in at 10570 and 10510.
The Relative Strength Index (RSI) on the Daily Chart is 46.72 and it has marked a fresh 14-period high which is bearish. Additionally, RSI also shows bearish divergence against the price. The Daily MACD continues to trade above its signal line but it is seen narrowing its trajectory. A big black candle emerged just below 200-DMA and this has reinforced the importance of the 200-DMA as resistance over coming days.
Pattern analysis reveal that the NIFTY has achieved a full throwback after it broke out of the falling channel that it had created for itself. NIFTY has presently rested exactly on the upper trend line that it had breached on the upside.
Ideally, NIFTY ought to have taken support on the 200-DMA. However, amid global risk-off and resultant headwinds, the index behaved once again as if something as important as 200-DMA do not exist at all. it would be extremely crucial for the Markets to defend the level of 10572. Any breach below this level will invite more weakness in the Markets.
We expect some respite from this weakness if this level of 10572 is defended. Also, significant number of shorts are seen being added as the decline has come with large addition of net open interest in NIFTY. It is suggested to now avoid fresh shorts and keep overall exposures moderate. Modest purchases may be made with each downside that the Markets may offer.
Vaishnav, CMT, MSTA, Consulting Technical Analyst
Member: (MTA, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)
Tel: +91-70164 32277 | |