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  • Milan Vaishnav, CMT, MSTA

Wednesday Trade Setup: NIFTY May To Grapple With Lockdown Implications; Staying Above This Level Imp

Amid a day of extremely volatile trade, the Indian equity markets attempted to stabilize while trading in a broad 500-point range. The markets saw a stronger-than-expected start to the trade but failed to sustain those gains. Soon after the open, the NIFTY slipped nearly 500-points from the opening highs to slip in the negative. However, from late morning trade onwards, the index started to inch higher. It not only recoupled its opening levels but edged higher as well. After coming off from the high point, the benchmark index ended the day with net gains of 190.80 points (+2.51%).

The markets are trying hard to find a temporary bottom for themselves while it consolidates in the near term. The trend for Wednesday will depend upon the price action of NIFTY against the 7850 levels. If the NIFTY manages to open or move past well above the 7850 levels, it will enter a broad consolidation zone; if it fails to do so or struggles near 7850, it is likely to turn weaker again. The India volatility index, INDIAVIX, surged another 16.15% to 83.6075 and now trades at its highest levels.

Wednesday is likely to see the levels of 7850 and 7980 as immediate resistance points. Supports will come in at 7665 and 7500 levels.

The Relative Strength Index (RSI) on the daily chart is 22.46; it stays neutral and does not show any divergence against the price. The RSI presently remains in the oversold zone. The daily MACD is bearish, and it trades below its signal line. A Doji occurred on the candles; this shows a lack of consensus and indecisiveness among the market participants.

The pattern analysis on the daily chart shows that after initially marking a low near 7850, NIFTY violated those levels a couple of days after that; presently, it has just closed a notch below that. If the index manages to crawl above 7850, we will see the NIFTY entering in a broad consolidation zone. The lead indicators remain in the oversold territory.

The markets are still witnessing rallies that are just fueled by short-covering; currently, the markets remain entirely devoid of any fresh buying from lower levels. There are higher possibilities of the markets seeing a positive start; however, as it has happened over the previous day, the sustainability of such pullbacks will be crucial to watch. While keeping the analysis on similar lines, we reiterate not chasing the pullbacks and wait until a directional bias is firmly established.

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