Gemstone Equity Research & Advisory Services

Outlook For Friday: Technical Setup Remains Predominantly Weak; NIFTY To Find It Difficult To Stage Pullbacks

The markets suffered a gap down opening again following a weak global setup and gave back more than what it had gained in the previous session. We had mentioned in the previous note that despite a gap up on the charts, there might not be any bullish implications on the following day. Trading precisely on the expected lines, stimulus details failed to defeat the weak technical setup. The NIFTY remained in the declining trajectory throughout the day. While showing no signs to recover at any point in time, the benchmark index ended the day with a net loss of 240.80 points (-2.57%).

The technical setup remains predominantly weak on the charts. Despite the second round of details of stimulus coming in, it is unlikely to enthuse the markets beyond a point. The NIFTY has shifted its resistance even lower, the zone of 9350-9400 now expected to pose stiff resistance to the markets. The volatility also declined despite the fall with the India Volatility Index, INDIAVIX, dropping by 1.68% to 38.1825.

A tepid start is likely on Friday. The levels of 9190 and 9265 are expected to act as resistance points. The supports will come in at 9060 and 8955 levels. The corrective move,
if there is any, is expected to expand the trading range on the downside.
The Relative Strength Index (RSI) on the daily chart is 47.25; it has marked a fresh 14-period low, which is bearish. The RSI remains neutral as it shows no divergence against
the price. The daily MACD is bullish as it trades above its signal line. The slope of the histogram appears to be sharply narrowing; this increases the possibilities of a negative crossover in the coming days. The PPO remains positive.
A falling window emerged on the Candle as a result of a gap down. This is likely to result in continued weakness on the next trading day.
The pattern analysis highlights the resumption of the downtrend after the NIFTY fell out of the rising wedge formation. After breaching the formation on the downside, the NIFTY spent some time within a defined range, but it now seems to be resuming its down move. During the gap up openings and intermittent pullbacks, the 50-DMA has provided stiff resistance on a closing basis.
Given the predominantly bearish technical setup, there are chances of the downside momentum persisting in the markets. We recommend the market participants not getting carried away with intermittent pullbacks as they might turn out to be deceptive. Any attempt to make bargain purchases at lower levels should be avoided. Overall, exposures should be kept on modest levels while sticking to the defensive stocks.

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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