Tuesday Trade Setup: Quiet Start Expected; Indicators Make Deceleration Of Momentum Evident
In the previous note, we had mentioned that in the event of the NIFTY not scaling back above the 50-DMA level; there will be some more weakness creeping in. While trading on the anticipated lines, the Indian equity markets slipped further to test its short-term 20-DMA on Monday. The markets saw a flat start to the trade; after a range-bound but volatile session, the index continued to see a slow but gradual decline throughout the day. After trading in a declining trajectory and showing no signs to recover, the headline index NIFTY ended the day with a net loss of 67.65 points (-0.56%).
Just as expected in the previous note, the NIFTY has confirmed a lower top near the 12250 levels. It confirmed this by sliding further below the 50-DMA, which presently stands at 12132. As of today, the index has ended a notch below the short-term 20-DMA level, which is currently at 12059. The F&O data shows long unwinding from higher levels, while volatility to resurfaced again as reflected by INDIAVIXn which rose by 5.88% to 14.4150.
The broad technical setup remains weak on the charts. The levels of 12080 and 12125 will act as overhead resistance points, while supports will come in at 12000 and 11965.
The Relative Strength Index (RSI) on the daily chart is 47.77; it stays neutral and does not show any divergence against the price. The daily MACD is bullish and trades above the signal line. However, the slope of the histogram is declining, which reflects the deceleration of the momentum.
The pattern analysis of the daily chart shows that the short-term 20-DMA has crossed below the 50-DMA indicating loss of momentum in the near term. If the NIFTY bounces back off the 20-DMA, we will see the upsides remaining capped near the 50-DMA.
We are likely to see the weak undertone continuing in the markets if the NIFTY fails to take support at the 20-DMA level on a closing basis. The US markets will be shut on Monday on account of President’s Day, and because of this, we will not have any overnight cues to deal with the next morning. Keeping the present technical setup in view, which is predominantly weak, we recommend continuing to approach the markets on a highly cautious note.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)