Wednesday Trade Setup: Mild Technical Pullback Still Likely; Staying Above These Levels Important
In a volatile and indecisive day, the Markets oscillated in defined range to end the day with a modest gain. The equities saw a quiet opening, and soon, the NIFTY saw itself trading in a positive trajectory. However, the rest of the session was spent in an 80-point range wherein the markets did not make any final directional call. Post oscillating in an unstable manner; the headline index finally ended the day with modest gains of 19.35 points (+0.17%).
Despite the volatility and any lack of direction, one point that remained technically important was that the NIFTY defended its 50-DMA, which stands at 11680. We expect markets to continue making attempts to give a technical pullback. So long as the level of 11680 stays defended on the closing basis, some possibilities of a technical pullback cannot be ruled out.
While a quiet start to the trade is expected on Wednesday, we expect the levels of 11730 and 11775 is likely to act as resistance on the upside. The supports come in at 11660 and 11580.
The Relative Strength Index (RSI) on the daily chart is 46.2346; it remains neutral and shows no divergence against the price. The daily MACD remains bearish and trades below its signal line.
On the candles, a Bullish Harami occurred. Under such a formation, the current small white body is contained within an unusually large black body. During a downtrend (which appears to be the case with NSENIFTY) this pattern implies an end to the decline as the bears seem to have exhausted themselves. Such a formation somewhat increases the chance of a mild technical pullback.
Though we continue to see the possibility of a technical pullback in the markets, we also reiterate maintaining extreme caution at higher levels. All pullbacks, if the level of 50-DMA is protected on a closing basis, will continue to see profit taking bouts at higher levels. These pullbacks, if any, are expected to be purely technical in nature and should not be used to make aggressive purchases. While maintaining a highly vigilant approach, it is recommended continuing to approach 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)