Market outlook: Nifty may see correction, but no deeper cuts

In our Tuesday’s note, we had categorically cautioned investors that the overstretched markets may face some minor but imminent correction. Though the market did not see a deep cut, it did come off nearly 80-odd points from the opening highs while ending the day with a net loss of 37.95 points or 0.39 per cent.

On Wednesday as well, we expect such corrective behaviour of the market to continue. Though the downsides may not be brutal, but the kind of corrective activity that we saw on Tuesday is likely to repeat itself. Barring some stock-specific action, we expect the market to continue showing minor corrections on Wednesday as well. The 9,709 level has become an immediate top for the market.

While the 9,650 and 9,710 levels will act as potential resistance zone for the market, supports will come in at 9,605 and 9,560 levels.
The Relative Strength Index, or RSI, on the daily chart stood at 66.8909 and it has just crossed below from a topping formation, which is bearish. The daily MACD still remains bearish even as it trades below its signal line. On the candles, an Engulfing Bearish Line has occurred. Since it has occurred after an uptrend, it potentially marks a short-term top for the market.

Pattern analysis shows the market is still ruling above the upper trend line that it had breached on the upside.



This trend line is rising and is drawn from the 9,200 level, which is likely to lend support to the market in the immediate short term.

Overall, some pockets will continue to show outperformance and stock-specific action is likely to dominate the session. In the same breadth, we expect the broader market to continue consolidating and show minor corrective activities. A cautious outlook is advised for the day.

STOCKS TO WATCH:
1. Petronet LNG: Buy this stock above Rs 450 with a short-term target of Rs 460. This stock has formed a rectangle formation and has remained of late in a trading range. Any move above Rs 450 will take the stock price higher. The MACD has reported a positive crossover and it is now bullish trading above its signal line. A separating line on candles further increases the chances of an up move.

The RSI has formed a higher high and is looking upwards. (Any call on this above the prescribed level would be positional and not intraday.)
2. Edelweiss: Buy this stock above Rs 186 with a short-term target of Rs 184. This stock remains in a structural uptrend and multiple signals have emerged which point towards upward revision in prices. The MACD has reported a positive crossover and it is now bullish above its signal line. While the stock consolidated, the OBV continue to rise which is a positive sign. The RSI is bullish as it has marked a fresh 14-period high. (Any call on this above the prescribed level would be positional and not intraday.)

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)