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  • Milan Vaishnav, CMT, MSTA

Tuesday Trade Setup: Oversold NIFTY May Try To Pullback Despite Panic Reactions; Volatility To Stay

The Indian equity markets ended on a negative note for the seventh day in a row as the last hour bear-grip took the headline index down from the intraday highs. The markets saw a much better and positive opening in the morning. As the index moved past the 11400-mark, the markets saw a massive selling pressure coming in as a panic reaction to two positive cases of COVID-19 in India. When it just seemed to be a day of a text-book technical rebound, the NIFTY Lost over 350-points in just a matter of an hour and a half from the high point. Though some recovery from lower levels was seen, the NIFTY ended the day with a net loss of 69 points (-0.62%).

The analysis for Tuesday is likely to remain on similar lines as the markets are expected to try and find a temporary bottom for themselves violently. Monday’s trade saw the volatility index, INDIAVIX, spiking up another 8.74% to 25.2025. The news break of the COVID-19 positive cases in India might fuel a negative sentiment in the beginning, but the oversold nature of the NIFTY on the short-term will see the index attempting technical pullbacks, and also stay volatile at the same time.

Tuesday is likely to see the levels of 11165 and 11255 acting as overhead resistance points. Supports will come in at 11036 and 10965.

The Relative Strength Index (RSI) stands at 23.56; it has gone on to mark a yet another 14-period low, which is bearish. However, the RSI does not show any bearish divergence against the price. The daily MACD continues to trade bearish while trading below its signal line. A large black body emerged on the candles; the size of the body signifies the intense selling pressure that the NIFTY sustained in the last hour and half of the trade.

The pattern analysis shows that the NIFTY has created a gap between 11400 and 11550 levels; this zone is going to act as a very strong resistance unless it gets filled up going ahead. Also, the index has drawn its expected trading range lower in the 11050-11400 levels. The NIFTY has vital double bottom support to look at near the 11000 levels, as evident from the charts.

All in all, if the knee-jerk reactions to the positive COVID-19 virus are digested, yet another pullback attempt from the markets cannot be ruled out. However, in the same breath, in the event of a continued downside, we strongly recommend avoiding any fresh short positions as the short-term indicators of the NIFTY are deeply oversold. We recommend staying very light on positions and continue adopting a highly cautious view for the day.

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