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Wednesday Trade Setup: NIFTY May React To The PM's Address; Upside In Any Case To Stay Capped

After a weak start, it was a sharp short-covering led up move that helped the markets recoup the bulk of its losses and helped it end with a modest loss. The NIFTY saw a gap down opening following weak global trade setup. The markets got weaker after it opened, and at one point in time, breached the important 9100-mark. However, the last hour and a half of the session saw a wave of sharp short-covering, which saw the NIFTY recovering all its losses. A precautionary measure led the move as the PM is slated to speak later in the evening. After a minor slip from the top, the NIFTY ended the day with a modest loss of 42.65 points (-0.46%).
 
 

The markets will react to if the PM makes any material remarks in the speech. However, if we analyze the markets from an independent technical perspective, it continues to hang precariously at current levels. Even if the event of any reactive up move, the zone of 9450-9500, will continue to pose very stiff resistance; this is also validated by the options data which has the highest Call OI concentration around these levels. The 50-DMA, at present, is also at 9441 levels.  Any negative move puts the level of 9000 in danger of being breached.

 
Wednesday will see the levels of 9245 and 9350 acting as immediate resistance levels; the supports come in at 9105 and 9000 levels. The trading range is expected to remain wider-than usual as the markets prepare to make a directional move.
 
The Relative Strength Index (RSI) on the daily chart is 48.29; it stays neutral and does not show any divergence against the price. The daily MACD is bullish as it trades above its signal line. On the candles, a candle with a long lower shadow occurred. This is not a classic hammer, but a small body with a longer-than-usual lower shadow. Such a formation does not paint a bullish picture, mainly if it occurs after a pullback.
 
The pattern analysis shows that the NIFTY continues to hang in precariously after falling out from the rising wedge pattern. Despite the sharp short-covering led the move, it has not demonstrated any directional bias and trades below its 50-DMA, which is presently at 9441. The zone of 9450-9500 is expected to act as a very stiff resistance zone for the markets over the coming days.
 
We reiterate the cautious view on the markets for Wednesday. If we hypothetically view the uncertain reaction of the markets, then the positive opening will see the markets opening near the resistance points. In the event of any adverse reaction, then we will see the NIFTY taking a directional bias after some ranged consolidation in the current zone. In either scenario, we recommend staying away from creating excessive leverage and prefer staying light on the positions.
 
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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