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  • Milan Vaishnav, CMT, MSTA

Wednesday Trade Setup: Mild Technical Pullbacks Likely; Broader Technical Picture Remains Weak

After trading predominantly on a bearish note throughout the day, the NIFTY recovered the bulk of its losses in the last hour of the trade. Despite no negative overnight cues, the markets opened on a much weaker footing in the morning. The index opened on a negative note and got weaker as the day progressed. At one point in time, it also slipped below the crucial 100-DMA level, which presently stands at 11942. However, the late afternoon trade saw a spate of short-covering from the lower levels. The short-covering saw the NIFTY recovering over 85-points from the low point; it eventually closed with a modest loss of 53.30 points (-0.44%).

The NIFTY now trades well below the lower top that it marked near the 12250 levels. It has also violated the 50-DMA and the short-term 20-DMA which stand at 12135 and 12053 respectively on a closing basis. It bounced off from the pattern support of the broadening formation and has held on the 100-DMA, which is presently at 11942 as a support on the closing basis.

Wednesday is likely to see a stable start to the day. The markets may again attempt to gain some stability and they are expected to trade stable, at least in the initial trade. The levels of 12050 and 12065 will act as resistance, while supports will come in at 11950 and 11905.

The Relative Strength Index (RSI) on the daily chart is 45.48; it continues to remain neutral and does not show any divergence against the price. The daily MACD is bullish as well and trades above its signal line. However, the MACD is about to report a negative crossover as the slope of the Histogram is seen sharply narrowing over the past couple of days. A hammer occurred on the candles. The current hammer is not a bullish hammer, but just a candle with a long lower shadow. This may be less potent. Nevertheless, it is important as it has emerged near the strong pattern support area.

There are possibilities that we may see some respite from the sell-off that is seen over the past couple of days. However, the markets are unlikely to show any significant up move and the markets may consolidate in the zone between the 100-DMA and 50-DMA. In the event of any up move occurring, it would be prudent not getting carried away but such up moves, and instead, such moves should be used to protect profits on existing positions. On the lower side, the 100-DMA level, which presently stands at 11942, will be a crucial support to watch over the coming days. A cautious view is advised as despite any likely technical pullback, the broader bias remains negative.

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