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Outlook For Wednesday: NIFTY To See A Stable Start; Focus On These Sectors To Navigate This Phase

After a terrible start to the week on Monday, Tuesday’s session saw some stability returning in the markets. The NIFTY opened on a positive note and after dipping in the negative zone briefly twice in the morning, ended the day on a decent note. The Supreme Court’s ruling on AGR saw telecom and banking stocks reacting to it as well. The NIFTY did oscillate in a 100-point range on either side and pared its gains twice during the day. However, the last hour of the trade saw the index rebounding again from the lower levels. After a volatile day, the headline index ended the day with a net gain of 82.75 points (0.73%).

The pullback in the markets was on back of short covering from lower levels. This was evident as the up move in the markets have come on back of shedding of net OI in NIFTY futures. The OI in NIFTY futures declined by over 10.64 lakh shares or 9.49%. Another important thing that was noticed was a clear shift to defensive stocks. FMCG and Consumption stocks saw strong buying from lower levels. Volatility, which had surged over 24% in the previous session, cooled off by 4.53% to 21.8000.

Wednesday is likely to see a steady start to the trade; the levels of 11550 and 11595 will act as resistance points. The supports will come in at 11410 and 11350 levels. We expect the trading range to stay wider than usual over the immediate short-term.

The Relative Strength Index (RSI) on the daily chart is at 58.73; it remains neutral and does not show any divergence against the price. The daily MACD is bearish and it is below its signal line.

The NIFTY had taken out the double top resistance zone of 11430-11450 on its way up. The recent decline has seen the index keeping its head above this level. 

The Rupee continued to appreciate against the US Dollar. US Dollar Index continues to test its lowest levels of the recent times. So long as Dollar Index continues to remain weak, the emerging markets will continue to benefit, and liquidity will continue chasing stocks. However, from the technical perspective, it would be important for the NIFTY to stay above 11400 level to avoid any incremental weakness from creeping in. We will see focus shifting to defensive stocks. We recommend avoiding aggressive shorts and adopt a cautiously positive outlook for the markets.

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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