Wednesday Trade Setup: Possibilities Of NIFTY Attempting To Stabilize; Avoid Shorts, Stay Selective
An all-out price war triggered by Saudi Arabia following OPEC+’s disintegration gave a rude shock to crude prices, which saw its biggest ever sell-off after the 1991 Gulf War that dragged the Brent crude down by over 25%. Further fueled by the spread of Coronavirus and its potential to disrupt the global supply chain and pushing economies into a recession, the equity markets across the work saw a terrible melt-down on Monday. The Indian equities were no exception as the markets saw a gap-down opening and got weaker as the day progressed. Despite coming off 160-points from its lows, the headline index NIFTY ended with a deep cut of 538 points (-4.90%)
Markets have come off 2000-odd points, or over 16%, from the peak levels marked in January 2020. The India volatility index, INDIAVIX, surged another 20.11% to 30.80 and now trades at a multi-year high point. Although the global mayhem will make the prediction of a likely bottom difficult as technical tend to get defied, the markets are expected to exhibit some signs of selling exhaustion; especially given the amount of short positions that exist in the system.
Indian markets shall open after a gap of a day as Tuesday was a trading holiday on account of Holi. With the Asian markets ending modestly positive and with European markets trading with gains until mid-Tuesday, we may see a positive start to the trade if there are no late evening or overnight negative news to deal with. The levels of 10535 and 10690 will act as resistance; supports will come in at 10390 and 10280.
The Relative Strength Index (RSI) on the daily chart is 19.18; it has marked a fresh 14-period low, which is bearish. However, RSI is deeply oversold below the levels of 30. The daily MACD stays bearish and trades below its signal line.
It would be prudent to avoid shorts as any kind of gap down opening does not provide any good opportunities for creating fresh shorts. Further, given the extent of the downside that we have witnessed, any new shorts may make the risk-reward setup extremely unfavorable. While avoiding shorts, we recommend using downsides, if any, to make highly stock-specific purchases. There are heightened chances of some technical rebound even if the broad setup remains bearish. A highly cautious and selective approach is advised or the day.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)