Gemstone Equity Research & Advisory Services

Wednesday Trade Setup: NIFTY May See Sporadic Pullbacks; Will Stay Vulnerable At Higher Levels

In what remained a demonstration of total lack of strength at higher levels, the markets again failed to capitalize on the gap-up opening that it got on Tuesday. We had mentioned in the previous note that although a technical pullback is likely, the sustenance of the same may be under the cloud as the technical setup remained weak. On the anticipated lines, the  NIFTY opened higher but gradually pared nearly all its gains by the end. After coming off over 170-points from the high point of the day, the headline index ended with a modest gain of 55.85 points (0.63%).

The banks and financial stocks remained particularly weak. The India Volatility Index, INDIAVIX, came off by 3.57% to 39.4525. The NIFTY has formed an inside bar, which has resulted in a formation of a lower top but a higher bottom. Going ahead from here, the markets will continue to see intermittent technical pullbacks; it will continue to remain vulnerable to sell-off at higher levels. The level of 50-DMA will stay as a major overhead resistance for the coming days on a closing basis.

Wednesday is again likely to see a stable start to the day. The levels of 8930 and 8990 will act resistance points. The supports will come in at 8795 and 8715 levels.
The Relative Strength Index (RSI) on the daily chart is 45.65; it stays neutral and does not show any divergence against the price. The daily MACD stays bearish; it trades below its signal line. Apart from a black body that emerged, no other significant formations were observed on the candles.
Going by the pattern analysis, the NIFTY has a predominantly bearish technical setup. The structure has turned structurally bearish after the NIFTY fell out of the rising wedge formation. After falling out of the wedge, the Index had consolidated for a short while, after which it appears to have resumed the down move.
Following the moves over the past couple of days, the NIFTY has shifted its major resistance point lower to the 50-DMA. The 50-DMA presently stands at 9199, and this will pose stiff resistance to any technical pullback if at all it occurs over the coming days. In other words, the markets are likely to again vulnerable to selling pressures from the higher levels. We reiterate to remain vigilant in the event of any technical pullback and keep protecting profits at higher levels while avoiding excessive exposures at current levels.

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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