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  • Milan Vaishnav, CMT, MSTA

Trade Setup For Monday: Mild Signs Appear Pointing Towards Likely Technical Rebound; Caution Advised

The rate cut by the RBI’s credit policy review failed to cheer the weak sentiments of the markets on Friday as the NIFTY continued with its corrective decline to end the day with a loss. The markets also failed to capitalize on a positive opening it got and gradually pared all its initial gains by the time the policy was announced. The 25 bps rate cut and the weaker growth forecast dented the technically vulnerable markets, and the NIFTY ended with a net loss of 139.25 points (-1.23%).

Friday’s session saw the NIFTY ending well below the 200-DMA, which is presently at 11262. The index has attempted to take support at the short-term 20-DMA, which is 11178. The NIFTY has given up 50% of the gains that happened following the fiscal stimulus announced by the Government and has got very near to the oversold levels on a couple of short-term indicators. There are chances that we market attempting a technical pullback from the current levels.

Monday is likely to see a modestly positive start to the day. The level of 11260 and 11295 will act as resistance points while supports will come in at 11135 and 11045.

The RSI on the daily chart is 48.8811; it stays neutral and does not show any divergence against the price. The daily MACD continues to remain bullish and trade above its signal line. A bearish engulfing candle has appeared; it may mark a potential bottom for the markets as it has emerged after a decline.

The pattern analysis of the daily chart shows that the NIFTY has given up 50% of the gains that happened following the corporate tax cut announcement. In the process, it has slipped below the 200-DMA but has currently taken support at the short-term 20-DMA on a closing basis.

Mild signs are appearing on the charts that suggest a likelihood of either a technical rebound or the downsides remaining limited in the markets. The shorts continue to exist in the system, and we can hope these shorts to lend support at lower levels. We suggest avoid creating fresh shorts and some short-covering from current or lower levels cannot be ruled out.

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