Outlook For Wednesday: Markets Stare At This Important Support; Broader Setup Remains Challenged
The Indian equities failed to capitalize on the fillip it got in the morning trade on Monday and extended its losses while dropping below its critical support levels. After the initial negative start, the NIFTY pulled back in the positive territory and spent most of the session trading with limited gains. The markets grew weaker in the last hour of the trade, and the NIFTY slipped below its short-term 20-DMA and ended the day with a net loss of 48.35 points (-0.43%).
While coming off in a corrective move after the vertical rise post the corporate tax cut announcements, the NIFTY has given up over 50% in retracement and the process; it has completely disregarded the 100-DMA and 200-DMA in terms of taking any support. After slipping below the short-term 20-DMA in the previous session, the Index now stares at the 50-DMA, which is presently at 11087 for some temporary support. Given the weak technical structure, there are possibilities of the NIFTY testing this level.
Markets are likely to see a soft start to the trade following one trading holiday in between; it will open after a gap of a day and adjust to global trade setup. Wednesday is likely to see the levels of 11190 and 11260 as resistance, while supports will come in at 11088 and 10960.
The Relative Strength Index (RSI) on the daily chart is 47.3446; it stays neutral and does not show any divergence against the price. The daily MACD has shown a negative crossover, and it is now bearish while trading below its signal line. A black candle appeared; apart from this, no other significant formations are seen on the chart.
The pattern analysis of the daily chart shows that the NIFTY has given up over 50% of its gains that happened after the corporate tax cut announcement. In the process, it has slipped below 100-DMA and 200-DMA along with the short-term 20-DMA. It now trades just above its 50-DMA.
The NIFTY is mildly oversold on the short-term charts, and it also has some shorts that continue to exist in the system. This may see some short-covering from lower levels despite the broader technical setup remaining week. We cannot rule out the possibilities of the NIFTY seeing some technical pullbacks; at the same time, these pullbacks, if there are any, will continue to face selling pressure from higher levels. While avoiding any aggressive exposures with any bias, a cautious approach 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)