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  • Milan Vaishnav, CMT, MSTA

Monday Trade Setup: NIFTY Faces A Potential Gap-Down Opening; Watching This Zone Crucial

The Indian markets snapped its four-day losing streak as the NIFTY staged a strong technical rebound on Friday. The markets saw a quiet opening, and after opening on a modestly positive note, it slipped in the red in the early morning trade. The markets managed to crawl back in the positive zone and staged a remarkable rally, which took the NIFTY higher by nearly 600-points from the low point of the day. The index, however, came off from the highs but ended on a robust note piling up gains of 482 points (+5.83%).

Friday’s rally was fueled once again by sharp short-covering from lower levels. Monday is likely to see a double whiplash that of the weak overnight ending of the US markets, and reactions to the measures taken by SEBI to curb naked shorts and volatility. There are high possibilities of the markets seeing a sharply lower opening again. The key would be to see if the markets digest the situation thoroughly and attempt technical rebound once again.

Monday is likely to see the levels of 8810 and 8890 acting as resistance levels. Supports come in much lower at 8250 and 7800. Just like it is happening over the past couple of days, any downside momentum will see a wider-than-usual trading range in the markets.

The Relative Strength Index (RSI) on the daily chart is 25.19; it stays in the oversold zone. The RSI remains neutral and does not show any divergence against the price. The daily MACD is bearish and trades below its signal line; no important formations were noticed on the candles.

The pattern analysis, if done along with the study of lead indicators, shows that the NIFTY has been trying desperately to form a temporary bottom for itself and halt its decline. However, as mentioned often in our previous note, doing this exercise in isolation will be of little help as the global setup will continue to dominate the markets.

For Monday and beyond, it will be crucial to see the behavior of the markets against the levels of 8450. In the event of the NIFTY opening lower and then not being able to move past 8450, we will stare at a possibility of the markets entering a large consolidation area. We recommend traders continuing to refrain from creating heavy exposures on either side until some directional bias is established.

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