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  • Milan Vaishnav, CMT, MSTA

Thursday Trade Setup: NIFTY Yet To Confirm A Likely Bottom; Price Action Against This Level Crucial

In a technically important session, the Indian equity markets staged a smart recovery in line with the global markets. The rally, which was evidently fueled by a massive spate of short-covering, took the NIFTY back inside the crucial 7850-8550 zone. The markets saw a shaky start to the day as the index rapidly pared its opening gains. After that, the NIFTY traded in a capped zone but continued to stay volatile. However, the second half of the session saw the markets gaining ground again. While staying in a rising upward trajectory, the NIFTY piled up over 600-points form its low point. The benchmark index ended the day with gains of 516.80 points (+6.62%).

The price action of the NIFTY against the levels of 8550 will be very crucial to watch over the coming days. For the markets to mark a temporary bottom near 7850, it will need to move past and stay above 8550 levels. Longer the markets remain in the 7850-8550 levels and do not move past it; it will create fresh room for the resurgence of volatility and some more downside. The India Volatility Index, INDIA VIX, cooled off by 7.16% to 77.6250

The markets are set to see a tepid start to the day. The levels of 8415 and 8550 will act as strong resistance points; supports will come in at 8200 and 8115 levels.

The Relative Strength Index, RSI, on the daily chart is 30.98; it has crossed above 30 from the oversold area, which is bullish. RSI remains neutral and does not show any divergence against the price. The daily MACD is bearish and trades below its signal line. A large white body emerged on the candles; this signifies a robust directional bias during the day.

The pattern analysis shows that the markets are attempting to confirm a temporary bottom near the 7850 levels despite short-term violations from that point in the past. It would be crucial to see how the NIFTY deals with the 8550 mark, which is the upper area of the broadly defined consolidation zone.

Some modest incremental upsides cannot be ruled out if there is no overnight weakness to deal with in the morning. It is important to note that the NIFTY has just attempted and not yet confirmed the bottom near 7850. For confirmation, it will need to move past and stay above 8550. If the index is not able to move past the 8550-mark, it will continue to oscillate and consolidate in the broad 7850-8850 zones. We recommend exercising patience and do not create heavy exposures unless a temporary bottom is confirmed. 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)