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  • Milan Vaishnav, CMT, MSTA

Friday Trade Setup: Structurally Weak Markets Awaits A Likely Technical Rebound; Tread Cautiously

In a disappointing and weaker-than-expected session, the Indian equity markets remained very weak and ended with a loss. The markets saw a mildly negative start to the day, but the weakness got intensified as the day progressed. The NIFTY remained in a downward falling trajectory for the entire session with no signs whatsoever of the recovery taking place. The index went on to breach its critical levels and after a mild recovery towards the end, closed the day with a net loss of 135.85 points (-1.25%).

The NIFTY remains technically weak and stays prone to further downsides going ahead. However, in the same breath, the NIFTY is trading very near to its immediate short term supports, and it is mildly oversold on a few of the indicators. With the NIFTY PCR at 0.85, the index is expected to halt its decline and either pullback or consolidate in a range.

While a quiet start is expected to the day, the levels of 10800 and 10845 will act as resistance points after the NIFTY having breached its support area. Supports come in lower at 10680 and 10635 levels.

The Relative Strength Index (RSI) on the daily chart is 37.86, and it has marked a fresh 14-period low which is bearish. The daily MACD has shown a negative crossover; it is now bearish and trades above its signal line. The PPO has just turned negative. Apart from a big black body that emerged on the candles, no other notable formations were seen.

The pattern analysis of the daily charts shows a very text-book behavior of the NIFTY while it halted its primary uptrend and began its intermediate trend. The index made a rounding-top formation, breached its neckline, and then sliding further after oscillating back and forth below it while resisting to the broken neckline.

There are no second doubts that the markets remain structurally weak. However, given the present charts, it will not be a surprise that the NIFTY shows some intention of stabilizing and attempting a technical rebound. The Index has lost over 370-points in the past four sessions and such steep downsides usually are followed by a technical rebound, even if it is short-lived. We recommend avoiding fresh shorts and continue approaching the markets with extreme caution.

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