Tuesday Trade Setup: Broader Weakness May Persist; Stay Alert On Technical Pullbacks, If Any
In what can be called a very weak start to the trading weak, the Indian equity markets fell in line with the weak global setup and ended the day with a deep cut. A somewhat fragile opening was expected as the Indian markets were shut on Friday. However, start on Monday’s trade remained much weaker than expected. The markets with a gap down and traded in a very capped range in the first half of the session. The second half of the day saw the weakness getting intensified as the NIFTY kept making a fresh gradual low while staying under a falling trajectory. The end of the session saw no recovery, and the headline index ended the day with a net loss of 242.25 points (-2.01).
From a technical perspective, multiple violations were observed on the daily charts. The NIFTY opened below the short-term 20-DMA and went on to slip and close below the crucial 100-DMA level, which presently stands at 11956. With this level getting violated on a closing basis, the up moves will face resistance at this point. The Volatility Index – INDIAVIX also witnessed a sharp surge of 24.07% to 16.9975.
Depending upon the extent of the overnight weakness that we may have to deal with, the levels of 11900 and 11945 will act as strong overhead resistance. The supports will come in at 11800 and 11765.
The Relative Strength Index (RSI) on the daily chart is 40.33. The RSI has marked a fresh 14-period low, which is bearish; it does not show any divergence against the price. The daily MACD is bearish, and it trades below its signal line. What makes it more bearish is the fact that the MACD is presently below its centerline.
A falling window emerged on the candles. A large black body occurring with a gap makes the present setup more bearish. Such a formation usually implies continuation on the downside.
The pattern analysis of the daily chart shows that the NIFTY has broken down again from the broadening formation. Going ahead, the level of the lower trend line of the broadening formation a resistance level for the NIFTY. It has also slipped below the crucial 100-DMA, which presently stands at 11956.
With the intensity of the decline, the markets have shifted their resistance zone lower to 11900-11950 levels. Every technical pullback, if at all there is any, will find strong resistance in this zone. We recommend avoiding any significant purchases and continue to remain light on the positions. All up moves, as and when they happen, would be nothing more than a mere technical pullback that should be used for protecting profits at higher levels.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)