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  • Milan Vaishnav, CMT, MSTA

Friday Outlook: Global Markets To Influence NIFTY; Trying To Find Bottoms In Isolation May Not Help

In an unprecedented decline across the globe, the Indian equity markets took a massive cut along with the global peers, and in the process, suffered the largest-ever loss in the history of Indian equities in absolute terms. After opening lower following a deep cut in the US markets, the NIFTY remained under a severe bear grip. After getting weaker during the day, the headline index NIFTY ended with a large cut of 868.25 points (-8.30%).

The NIFTY trades very profoundly oversold on the daily and weekly timeframe charts. Despite such a technical setup, analyzing the Indian markets in isolation will not be of any help. While this is being written, the Dow Jones Futures are trading with another cut, which is likely to see US markets opening on a weaker note. If the overnight weakness in the US Markets persists, it will disallow any significant pullback in the Indian markets, which are otherwise trading in oversold territory.

Friday is likely to see a shaky start to the day once again. The opening of the Indian markets will directly be influenced by the overnight close of the US markets and its effect on the Asian markets. In the event of any technical pullback, the levels of 9750 and 9960 will act as resistance, while supports will come in at 9410 and 9310 levels.

The Relative Strength Index (RSI) on the daily chart is 13.05; it trades deeply in oversold territory. The RSI has marked a fresh 14-period low; it does not show any divergence and remains neutral against the price. The daily MACD is bearish; it stays below its signal line. A falling window occurred on the candles. Such formation results because of a gap on the downside. The large size of the candle signifies the tremendous selling pressure that the session on Thursday witnessed.

The India Volatility Index – INDIAVIX rose by a massive 30.45% to 41.1625. The volatility index trades at a fresh high since 2010 levels. Although high levels of volatility index are often associated with bottoms in the markets, in the present context, it is best advised to wait for some temporary bottom formation on the charts. Given the deeply oversold nature of the markets, it is strongly recommended against creating any new shorts in the system. In the same breath, purchases should also be in very modest quantities. It will not be prudent to make aggressive purchases just because the markets are oversold. It is recommended that bargain buying should be attempted only when some signs of stability emerge even if it means making purchases at higher than present levels.

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)