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  • Milan Vaishnav, CMT, MSTA

Wednesday Trade Setup: NIFTY May Test This Critical Zone; Avoid Finding Value At Lower Levels

In almost what can be termed a disastrous session for the equities, the Indian markets suffered a severe setback and went on to end with a deep cut. The opening on Tuesday remained tepid on expected lines. The headline index opened with a mild cut, but as the day progressed, it continued sliding lower steadily. With virtually no attempt to recover from lower levels, the NIFTY remained in a linear falling trajectory and ended the day with a deep cut of 185.90 points (-1.69%).

The NIFTY has managed to keep its head above the 10800-levels barely. While the market attempts to find its base and stabilize, it will not be a surprise if the NIFTY revisits the 10780-10800 support zone once again which is one of the most critical support zones of the recent past. The behavior of the index against this zone will be extremely crucial to watch.

If there are no adverse overnight developments on the global front, we can expect a mildly positive start to the trade on Wednesday. This being said, despite any pullback, if at all it occurs, the technical setup remains extremely weak. The levels of 10850 and 10890 will act as resistance while supports will come in at 10780 and 10660.

The Relative Strength Index stands at 41.42; it continues to remain neutral without showing any divergence against the price. The daily MACD stays bullish above its signal line, but it is seen narrowing its trajectory going ahead. A large black candle emerged. Importantly, it appeared near the neckline area of the rounding top formation while reinforcing the credibility of the zone as a strong resistance.

Irrespective of a pullback occurring or not going ahead, the Tuesday’s session has further shifted the resistance zone lower. The 10950-11000 zone has become an area where NIFTY will find very stiff resistance going forward.

Given the intensity of the fall occurring in a single day, there are theoretical chances of a mild technical pullback. However, the technical setup remains weak and the pullbacks, if at all they occur, are not expected to last longer. Apart from the economic consequences of the spike in crude prices, the geopolitical tensions in the Middle East are also being observed closely. We reiterate an extremely cautious view on the markets and advise against attempting to find value at current levels unless some stability is seen in the markets.

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