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  • Milan Vaishnav, CMT, MSTA

Friday Trade Setup: NIFTY Show Mild Signs Of Attempting Stability; Avoid Aggressive Shorts Now

The expiry day of the February series saw the markets staying volatile during the day while it ended on a negative note after dipping below critical levels. The NIFTY saw a negative opening and soon drifted below the crucial 10550 levels in the early afternoon trade. However, the remaining part of the session saw the markets attempting to stabilize and pull back from the lower levels. The NIFTY managed to recoup over 100-odd points from the low point of the day. The headline index ended in the negative losing 45.20 points (-0.39%).

Thursday’s session stays important while we look at a couple of points that indicate the formation of a potential base in the near term. Although the NIFTY remains below the all-important 200-DMA, which presently stands at 11687, it remains within its filter on a closing basis. Also, the index has not violated the double bottom pattern support; it has also formed a Hammer near these support areas. All this point towards markets gaining some stability in the near term.

Friday will see the levels of 11680 and 11745 acting as strong resistance points. Supports come in at 11605 and 11560.

The Relative Strength Index (RSI) on the daily chart is 34.05. The RSI has formed a fresh 14-period low, which is bearish; it does not show any divergence against the price. The daily MACD is bearish, and it trades below its signal line. A Hammer emerged on the Candles. Such a formation, when it occurs near the pattern support, may help in formatting a potential bottom for the markets.

The pattern analysis shows that the NIFTY has broken down from a broadening formation. The index trades below all its key moving averages, it has stayed within the filter of the 200-DMA on a closing basis. If a technical pullback occurs, the NIFTY will now form a descending triangle formation going ahead, and the broader set up will continue to remain bearish.

From the immediate short-term point of view, the markets have shown signs of some bottoming out. The index is seen attempting to gain some stability and may continue to attempt a pullback. However, it is also important to note that such technical pullbacks will be primarily led by short-covering in the initial phase. We recommend refraining from creating fresh shorts and continue to make stock-specific purchases with each dip that markets offer. A cautiously positive approach is advised for the day.

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