Outlook For Thursday: Avoid Finding NIFTY Bottoms In Isolation; Global Trade Setup Will Dominate
In an extremely bearish session of trade, the NIFTY tested the previous low formed a couple of days back and also ended below it. The Markets saw a stable opening to the session and traded with gains. The gains got eroded quite early, and the NIFTY transformed itself in a secularly falling channel. After establishing a firm downtrend, the NIFTY came of over 500-points from the high point of the day. The index also violated the low point of 8555 formed a couple of days back. After a minor recovery, the headline
the index ended the day with a deep cut of 498.25 points (5.56%).
If we read the present technical setup in isolation, a probability of a mild technical pullback cannot be ruled out. However, as we have always pointed out in the previous notes, analyzing the domestic isolation and preempting a pullback will not help. The markets will continue to remain affected with global weakness; in the event of any negative overnight performance in the US, our markets will remain affected as well. The India Volatility Index rose marginally by 1.64% to 63.9550.
The bearish outlook in the US continues to persist while this is being written as the Dow and S&P futures are trading with a cut. If the overnight weakness stays, the possibilities of a weak start in India cannot be ruled out. In any case, the levels of 8510 and 8635 will act as overhead resistance, while supports will be much lower at 8310 and 8235 levels. As has been the case of the past couple of days, the day’s range will continue to remain wider than usual.
The Relative Strength Index (RSI) on the daily chart is 15.15; it continues to remain deeply oversold. The RSI shows a bullish divergence as it has not made a fresh 14-period low in line with the NIFTY. The daily MACD stays deeply bearish, trading below and much away from the signal line.
Again speaking in isolation, the technical indicators on the charts are deeply oversold. However, as mentioned earlier, it would be dangerous to attempt to find a bottom without keeping the global market scenario in perspective. We recommend traders to trade on either side with great caution. There are chances of some technical pullback, but again, the sustainability of such pullbacks will be a big question mark. We recommend continuing to approach the markets with utmost caution. Bargain buying should be attempted after at least a couple of faint signals of potential bottoms are in place.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)