Gemstone Equity Research & Advisory Services

Monday Trade Setup: NIFTY Likely To Stay Volatile As It May Attempt To Stabilize; Watch These Levels While Staying Light

The session on Friday saw the Indian markets resuming its downtrend along with the global peers as it opened with a gap down and ended with a deep cut. The markets saw a gap down opening but held the opening lows. Not only did the Index held to its morning lows but showed some significant recovery as well. However, all recovery was pared again as the markets encountered renewed selling pressure and went on to breach the morning low. While showing no attempt to recover after that, the headline Index NIFTY50 ended with a cut of 193.60 points (-1.68%).

We might see some mild incremental weakness as we step into a new session. US markets have ended negatively; however, they were significantly off their lows when they closed. This would mean that we can expect Indian markets to attempt to gain some stability and try for a mild technical pullback. However, the NIFTY has failed the double top breakout that it tried when it took out 11430 levels. This means that the zone of 11430-11500 stays as a crucial and strong resistance zone. Volatility increased as the INDIAVIX surged by 8.05% to 22.1525 levels.

Monday is expected to see the levels of 11385 and 11430 acting as resistance points. The supports come in at 11285 and 11200 levels.

The Relative Strength Index (RSI) is 50.90 on the daily chart; it has marked a new 14-period low which is bearish. The RSI is neutral over the 14-day period. The daily MACD is bearish as it is below its signal line. A falling window occurred on the Candles. Such a candle is formed because of a gap down usually means continued downside momentum. However, this would require a confirmation on the next trading day.

The pattern analysis shows two important developments. First, the NIFTY has fallen from the rising channel that it was trading in since the lows in March. Secondly, it has slipped below the double top resistance at 11430, the level which it took out when it took out the double top.

All in all, we might see some mild downsides, but at the same time, the NIFTY attempting a technical pullback cannot be ruled out. Having said this, we expect the level of 11430 to be of immediate importance. It would be crucial for the NIFTY to move past 11430 as soon as it can to avoid incremental weakness. It is also expected that volatility will remain at elevated levels over the immediate short-term. We recommend staying light on overall positions and avoid aggressive shorts or longs at any level. Some broad-ranged consolidation is what is expected over the coming days.

Milan Vaishnav, CMT, MSTA
Consulting Technical   Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK)  | (Research  Analyst, SEBI Reg. No. INH000003341)

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