Monday Trade Setup: Mild Pullbacks Likely; Broader Technical Structure Has A Negative Bias
The Friday’s session remained weak for the markets as it was any way trading in the negative for most of the session and it sentimentally damaged in fear of India imposing retaliatory duties on the US. The headline index traded negative but sideways with capped losses until late afternoon but dipped further while marking low of 11797.70. The market breadth continued to remain negative, and the index ended the day losing 90.75 points (-0.76%).
We expect a soft start to the week as we approach Monday’s trade. Though mild technical pullbacks cannot be ruled out, we will continue seeing the markets facing selloffs at higher levels. While negotiating soft pullbacks, the NIFTY has set a stage where it is likely to complete its throwback testing its supports that lie in the 11740-11760 zones going ahead.
Monday is likely to see the levels of 11860 and 11930 acting as resistance. Supports are expected to come in at 11770 and 11740.
The Relative Strength Index (RSI) on the daily chart is 51.8733; it has marked a fresh 14-period low, which is bearish. The daily MACD stays bearish while trading below its signal line. A black body emerged on candles; no other formations were observed.
The pattern analysis on the daily charts shows that the NIFTY has slipped and closed below its short term 20-DMA, which is presently at 10856. This level may pose some mild resistance in the event of NIFTY attempting a pullback. If the index manages to stay above this level, we may see it trading in a sideways trajectory.
All in all, the inherent bias of the markets remain that of corrective nature. The leading indicators are making lower tops, the VIX shows complacency in the markets by staying at multi-month lows, and all these do not point towards an encouraging setup for the markets. We reiterate approaching the markets with caution and avoid aggressive purchases. The chasing of momentum in the event of any pullbacks should be avoided.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)