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  • Milan Vaishnav, CMT, MSTA

Outlook For Tuesday: NIFTY Has More Negatives To Deal With; Pullbacks, If Any, Will Be Deceptive

The Indian equity markets faced more than one negative factor as it stepped in the new week on an extremely bearish note. Apart from an overnight weak global setup, the domestic markets grappled with Sebi measures that were directed towards curbing naked shorts. To add to that, the country has started to slip into lockdown following the rise in Coronavirus cases. The markets opened with a gap down, traded itself lower to a 10% decline, which led to the freezing of the trade for 45 minutes. After resumption, the markets showed no inclination to recover, and the headline index ended the day with a deep cut of 1135.20 points (-12.98%).

The markets presently stand at their 4-year low after suffering the largest decline in its history in absolute terms. The volatility index, INDIAVIX, also surged by another 7.28% -to 71.9850 and continued to stay at its multi-year high. The NIFTY has slipped below the critical level of 7850; any pullback will find its resistance near this level. In the event of any technical pullback, the 7850-8550 zone will limit the upside, if any, for the markets. That being said, with no signs of a bottom formation in sight, any pullback of this nature may prove deceptive.

While this is being written, Dow futures are off their lows and are trading with gains. If there is no overnight weakness to deal with, we may see domestic markets attempting to stabilize. However, now India has larger issues to deal with apart from global trade setup, and this may hamper any attempts to pullback.

Tuesday is likely to see the levels of 7750 and 7850 acting as resistance; supports will come in lower at 7510 an 7235. Downside risks remain larger than any upside possibilities.

The Relative Strength Index (RSI) stands at 19.04 on the daily charts. The RSI shows a clear bullish divergence as the NIFTY marked a fresh 14-period low, but the RSI did not. The indicator also remains in oversold territory. However, looking at such divergences in isolation will be meaningless in the present scenario. The daily MACD is bearish; it trades below its signal line.

In the event of the global markets showing a positive setup, there will be a struggle between positive global setup and the domestic worries following the rise in the Coronavirus spread. There are higher possibilities of the NIFTY now entering a broad trading range once again if there is no incremental negative news flow to deal with. In either case, we recommend staying away from the markets and strictly avoid creating any significant exposures unless markets gain some stability.

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