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Monday Trade Setup: NIFTY May See A Stable Start; Keep A Hawk-Eye On The Technical Pullback Here

The markets on Friday turned out once again on the expected lines as the NIFTY staged a strong pullback rally to end the day with decent gains. The markets saw itself opening on a modestly positive. After a mild initial decline, the NIFTY stayed in an upward rising channel for the whole trading session and at no point in time that it dipped in the negative territory. After seeing a secular up move across the sectors the index managed to stay near its high point until the end of the session. Finally, the benchmark index ended the day with a strong gain of 244.70 points (2.26%).

From the technical perspective, a few things are important to note. The NIFTY’s bouncing back after a near-vertical over 500-point decline was expected. Also, it has bounced off from very near to the 200-DMA which presently stands at 10757. The RSI also bounced off from very close to the oversold point of 30. The Friday’s move of 244.70 points have come with  a decline of net futures OI. The OI of NIFTY futures declined by over 2.29 lakh shares or 2.85%. This shows a clear discomfort near this crucial 200-DMA and the rally has come because of sharp short covering from lower levels.

Monday is likely to see a stable start to the day with the levels of 11065 and 11155 acting as resistance points. The supports come in at 10960 and 10900 levels.

The Relative Strength Index (RSI) on the daily chart is 41.49; it remains neutral and does not show any divergence against the price. The daily MACD is bearish and it trades below its signal line. A large white body emerged on the candle showing a strong consensus of the uptrend in the previous session.

The pattern analysis shows that the NIFTY has failed twice to break above the double top resistance point of 11430. This brings down the major pattern resistance zone down to 11400-11430 range from the earlier 11800 levels. The technical pullback might continue but the zone of 11400-11450 will continue to pose resistance to the NIFTY at higher levels.

Speaking from a very short-term perspective, we may see the markets seeing some more technical pullback. That being said, it would be crucial to keep a hawk-eye on the technical pullback that is happening in the Dollar Index as well. The financial stocks may either lag in performance or may put up a highly stock-specific show. We recommend continuing to focus on the defensive and non-discretionary stocks to keep a healthy risk-to-reward ratio over the coming days. While avoiding aggressive shorts, a continued cautious view is advised for the day.

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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