Monday Trade Setup: NIFTY To Stay Volatile; Avoid Chasing The Technical Pullbacks, If Any
On a day that can be called a day of extremes, the NIFTY witnessed insane volatility on either side before ending with some gains. The markets saw an immensely weak opening following the overnight rout in the US markets. After opening with a gap down, the NIFTY headed lower and was subject to 10% freeze for 45 minutes. However, once the session resumed, the index saw over 1700-point recovery from the lows. In the end, the NIFTY ended with net gains of 365.05 points (+3.81%).
Markets witnessed the single largest decline in a day in the history on Thursday in absolute terms. The following day saw the largest recovery from the lows in the history in absolute terms. In the process, the India Volatility Index, INDIA VIX has surged 25.05% to 51.4725 despite coming off its highs. The technical pullback that was witnessed on Friday had been on a shart short-covering, as evident from the F&O data.
Monday will see a volatile start to the day as the NIFTY might attempt some extension of the pullback. The levels of 10150 and 10215 will act as resistance; the supports will come in at 9810 and 9600. The trading range is expected to remain wider than usual.
The Relative Strength Index (RSI) on the daily chart is 24.36; it continues to trade in the oversold zone. The RSI remains neutral and does not show any divergence against the price. The daily MACD is bearish; it stays below its signal line.
The pattern analysis shows that going ahead from here; the NIFTY will have to deal with the gap that is created between 10050 and 10275. This gap is likely to cause some resistance on the upside and may push the markets into some consolidation.
All in all, while the world markest attempt to stabilize, the Indian markets will also try to find a bottom for themselves. During the time this happens, we will see the NIFTY oscillating in a broad range. Volatility, too, shall continue to persist for some more time.
In the event of any extension of technical pullback, we would strongly recommend traders not to chase any momentum on the upside. Firstly, there is a lot of uncertainty on the extent of actual damage that the outbreak of coronavirus can have on the global economy. Secondly, any pullback, without any confirmation, should not be construed as any kind of base formation by the markets. Amidst such a setup, it is best advised not chasing the markets and continuing to approach them on a highly cautious note.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)