Tuesday Trade Setup: Possibility Of A Mild Technical Pullback Seen; These Levels Important To Watch
It was a weak start to the day and week on Monday as the Indian equity markets opened negative, got more nervous as the day progressed, and ended the day with a deep cut. After witnessing a soft start, the NIFTY drifted into the read and remained so for the entire session. During the whole session, there was no signs or attempts of any recovery. The downside remained secular, and no sector index ended with gains. The headline index ended the day with a net loss of 151.15 points (-1.28%).
The NIFTY, which had ended below the short term 20-DMA in the previous session, has tested its 50-DMA to close just a few points below it. The index has seemingly taken support at 50-DMA and has also marked short 20-DMA as an critical resistance mark in the event of any technical pullback.
Given the sharp selloffs that we witnessed over the past couple of days, a mild technical pullback cannot be ruled out. We expect a sober start to the trade on Tuesday. The level of 50-DMA, which presently stands at 11680, will be essential to watch. It may provide support to the markets for the short term on a closing basis. Any breach of this level on the downside will infuse some more weakness.
Tuesday is likely to see the levels of 11730 and 11800 acting as next resistance points. Supports will come in at 11650 and 11550.
The Relative Strength Index (RSI) on the daily chart stands at 45.2946; it has marked a fresh 14-period low, which is bearish. The daily MACD remains bearish and trades below its signal line.
A large black body emerged on candles. It occurred with its high near the 20-DMA. The emergence of this big black body establishes the importance of the 20-DMA as resistance in the event of any technical pullback going ahead.
There are no other doubts that the broader technical setup remains bearish. However, given the quantum of decline over the past couple of days, there are chances of some technical pullback in the markets. However, these technical pullbacks, if there are any, should not be used for making aggressive purchases. The markets have been stock specific and shall remain that way for some time. While avoiding aggressive positions on either side, the markets may be approached with a high degree of caution.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)