The overextended markets slipped in the corrective mode on the expected line as it validated the important trend line pattern resistance. The NIFTY witnessed a modestly positive start to the day. However, it marked its day’s high point in the early minutes of the trade and then slipped in the negative territory. Until the afternoon, the markets did not take any directional bias. However, the second half of the session saw the markets getting gripped by a corrective wave. NIFYT came off over 250-points from its high point and ended the day with a net loss of 195.05 points (-1.07%).
As of now, the reason behind this corrective more remains very much technical in nature. Following a strong technical pullback of over 1800-points from the lows of 16400, the NIFTY had got overextended on the charts. Besides this, the index also resisted extended trend line that acted as a strong pattern resistance. Following Tuesday’s session, the markets have just slipped into a broad ranged consolidation; downsides, though, may continue to remain limited. Volatility shot up; INDIAVIX surged 6.05% to 17.7800.
Wednesday is likely to see the levels of 18165 and 18270 acting as potential resistance points. The supports come in at 18050 and 18000 levels.
The Relative Strength Index (RSI) on the 62.22; it is neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line. A bearish engulfing candle emerged; this appearing after a rally and near the trend line resistance adds to the credibility of the resistance. This may cause the present rally to halt and push the market in some consolidation.
The pattern analysis shows that the Index has resisted to the extended trend line pattern resistance. This trend line is the extension of the necklike of the bearish Head & Shoulder formation that was formed which the NIFTY had violated. As of now, the levels of 18300-18350 become stiff resistance for the markets.
We also enter the penultimate day of the expiry of the weekly options. The high amount of call writing 18200 and 18300 makes these levels strong resistance area; the strikes of 18300 holds maximum accumulation of Call OI. The markets are just taking a breather; such ranged consolidation would be in fact healthy after such a strong technical pullback. It is recommended to avoid creating shorts; all such corrective opportunities should be utilized to make select purchases. Pockets like banks, financials, Auto, and some select stocks from the broader universe may relatively outperform over the immediate short term.
This was first published by The Economic Times.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)
