Outlook For Wednesday: NIFTY Holds 100-DMA; These Signs Point Towards Potential Pullback
In a very challenging and volatile session, the Indian equity markets struggled hard to find a base of itself while ending on a flat note. After opening on a modestly negative note, the NIFTY slipped further to fall below its critical support zone of 111500-11550 area and in the process dipped below its crucial 100-DMA level. However, it managed to recover from its lows, kept its head above the mentioned critical support zone, and ended the day with negligible loss of 2.70 points (-0.02%).
There are some classical signals which show that the NIFTY may potentially pullback from the current levels. The Index has held on to the support area, which is the confluence zone of important pattern supports. The NIFTY has also held on to the 100-DMA which is presently at 11500 on a closing basis; it has formed a bullish candle while adding in Net Open Interest on the derivative front.
Wednesday is likely to see a flat to a positive start to the trade. In all probability, we may see NIFTY attempting to inch higher in the process of pulling back from the current levels. The levels of 11610 and 11680 are likely to act as crucial resistance while supports will come in at 11500 and 11460.
The RSI on the daily chart is 38.7043; it has marked a fresh 14-period low, which is bearish, but it does not show any divergence against the price. The RSI also appears to be taking pattern support while continuing to remain trapped in a pattern. The daily MACD is bearish, and it trades below its signal line.
A candle resembling a long lower shadow emerged. It is bullish as it has developed near the critical support area. Though the lower shadow is not long enough, the formation potentially signals a continued attempt to form a base and reverse the trend.
While pulling back from the lows of the day, the NIFTY has ended the day with a net addition of Open Interest on the derivatives front. The NIFTY PCR stands at 0.87, and this figure indicates nearly oversold condition on the immediate short term horizon.
With the NIFTY respecting its 100-DMA level of 11500 on a closing basis, this level will be a crucial point to watch in the coming days. So long as the index keep its head above this level, we will have higher chances of a pullback up to the levels of 50-DMA which the NIFTY has broken on the downside. We strongly recommend avoiding shorts. New purchases may be kept stock specific and in modest quantities. A cautiously positive 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)