Nifty outlook: A minor rebound not ruled out; focus on protecting profit

After remaining rangebound for most part of Tuesday’s session, the domestic market plunged further to end with losses for the second day in a row. The market was anyway weak technically with the higher timeframe charts remaining over-extended. They were further spooked by a sharp depreciation in the rupee against the US dollar, which ended at its record high against the domestic currency.

The Nifty sharply lost ground in the last hour-and-a-half of trade and ended losing 98.85 points, or 0.87 per cent.

As we enter Wednesday’s session, there will be two ways to look at it. On Wednesday, we might see a small pullback in the market. However, a broader view of the market on both daily and weekly charts would show the bearish undertone might continue to persist and the most immediate and major pattern support of 11,170 might come into play again if weakness persists for longer time.


On Wednesday, Nifty is likely to see immediate technical resistance at 11,310 and 11,350 levels while supports should come in at 11,210 and 11,170.

The Relative Strength Index or RSI on the daily chart stood at 42.3225. It showed a bullish divergence against price. While Nifty marked a fresh 14-period low, the RSI did not. The daily MACD remained bearish even as it traded below the signal line. No significant formations were observed on the candles.

There were no negative cues from the global markets overnight. The only thing we would now need to guard against would be rupee behaviour against the dollar, which is likely to cool off slightly. All of this may lead to a mild pullback in the market. However, as often mentioned in our previous notes, we will continue to remain vulnerable to profit taking at higher levels.

What we are seeing at present is a classic mean reversion on the charts and the primary uptrend continues to remain intact. We recommend using all downticks to make select purchases while vigilantly guarding profits at higher levels. A cautious outlook is advised for the day.

STOCKS TO WATCH:
Relative outperformance against the general markets is likely from stocks like Thomas Cook, Rallis India, Kansai Nerolac, VRL Logistics, L&T Technology Services and Eveready Industries.

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