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  • Milan Vaishnav, CMT, MSTA

Outlook For Friday: NIFTY Ends A Notch Below This Critical Level; Broader Technical Setup Stays Weak

In a disappointing day of trade, the markets gave up a good part of its previous day’s gains as the NIFTY ended with a loss. The banks and financial stocks ended on a weaker note as well and continued to grossly underperform the frontline markets. After starting on a soft note as expected, the NIFTY traded with modest losses in the morning trade but grew weaker as the day progressed. The index slipped below its critical support level in the process and ended the day with a net loss of 78.75 points (-0.70%).

The weekly options expiry and the concentration of maximum Put OI at 11200 ensured that NIFTY settles above this level. However, the NIFTY has slipped below its critical level of 200-DMA, which presently stands at 11268. The behavior of the index against the price level of 11268 will be important to watch. If the NIFTY is not able to move past this level, some more weakness cannot be ruled out going ahead.

The markets are likely to see a tepid start to the day again, and the levels of 11270 and 11345 will act as resistance points for the markets. Supports come in lower at 11180 and 11050.

The Relative Strength Index (RSI) on the daily chart is 50.77; it continues to stay neutral and does not show any divergence against the price. The daily MACD remains bearish and trades below its signal line. A black body occurred on the candles, and apart from this, no other formation appeared on the charts.

The pattern analysis of the daily charts shows that the NIFTY has given up nearly 50% of its most recent gains. It presently remains in the corrective mode, and despite the sharp technical pullback, it has not been able to keep its head above the 200-DMA level of 11268.

There has been a substantial increase in volatility over the past couple of days. Volatility is expected to remain, and Markets will keep seeing bouts of short covering as well going ahead. However, the recent decline has come with the shedding of OI and some long unwinding from higher levels. The broader technical setup of the markets remains weak, and this keeps NIFTY vulnerable to volatile selloff from higher levels. Keeping in mind the vulnerability of the markets at higher levels, we recommend keeping overall exposures at modest keep protecting profits at each higher level that markets offer. A cautious view 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)