Monday Trade Setup: Residual Reactions To Budget May Continue; Upsides, If Any, May Remain Capped
The first budget of the renewed term of the Narendra Modi Government was presented on Friday, and it largely failed to provide any cheer to the markets. The session remained very typical as it usually stays on any budget day. After the initial range-bound moves in the morning trade, the NIFTY reacted negatively to the budget. Though some intermittent, volatile movements were seen, the index finally ended near the low point of the day losing 135.60 points (-1.14%).
The present technical setup does not remain in favor of any significant up-moves happening in the markets. The markets have very rough terrain to negotiate at higher levels; especially in the 11900-12000 zones. The index has currently slipped below its short-term 20-DMA which is presently at 11828. Though some mild technical pullbacks cannot be ruled out, we will see some residual reactions to the budget persisting in the initial trade.
A flat to a mildly positive start is expected on Monday with the levels of 11860 and 11930 acting as resistance points. Supports come in at 11770 and 11730.
The Relative Strength Index (RSI) on the daily chart is 50.0107; it remains neutral and shows no divergence against the price. The daily MACD stays bullish while trading above its signal line but it again appears to be moving towards a negative crossover.
An Engulfing Bearish Line has occurred. The occurrence of such a candle during an uptrend is a bearish indication. Though it requires confirmation on the next trading day, it can mark a potential short-term top for the markets.
Friday’s session saw weakness in the trade that was secular in nature. All sector indexes barring PSU banks and FMCG ended in the negative zone. We expect the residual reactions to budget to continue. The index has ended a notch below its short term 20-DMA which is at 11828. If the markets have to avoid any more weakness, it will have to pull back a bit and close above this level. Any continued weakness might push the markets towards its 50-DMA, which is currently at 11725 and also coincide with multiple pattern supports. A cautious outlook 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)