Trade Setup: Avoid excessive exposure, look for stock-specific performances

The markets struggled to find feet on the second day of the trading week as it ended with a cut. The Nifty saw itself opening on a positive note. However, the markets marked its high in the very early seconds of the trade. Immediately after that, the Nifty saw a near-vertical decline and also marked the day’s low point in the first hour of the day. After marking for the day’s range, at one point, the index had recoupled all its losses and traded flat.
However, the Nifty got weak again and finally ended the day with a net loss of 96.90 points (-0.86%). Wednesday might see the markets attempting to stabilize a bit. However, the rising dollar index might pose a slight issue. In fact, the two days of volatile downside can be attributed to that factor. So, it may not be a surprise if the Nifty attempts a mild technical pullback after over a 350-point decline in two sessions.

The volatility declined as the INDIAVIX came off by 3.50% to 21.4100. The Nifty has violated its 50-DMA on a closing basis. This level will now act as resistance in the event of any technical pullback. The coming session is expected to see a stable start to the day. The levels of 11230 and 11260 will act as resistance points. The supports will come in at 11110 and 11060 levels.

The Relative Strength Index (RSI) on the daily chart is 40.49 and has marked a new 14- period low which is bearish. RSI, however, does not show any divergence against the price. The daily MACD is bearish and it trades below the signal line. A large black body occurred on the candles. The pattern analysis shows the Nifty only failed the double top breakout twice, but it has drifted below the 50-DMA as well which is presently at 11284. This has shifted the resistance points lower for the markets at 11284 and then at 11430. From the current technical setup, it is evident that the Nifty has two major overhead resistance at 11280 and 11430 levels. And given this setup, Nifty moving past these levels too soon in future is highly unlikely.


However, just because that the Nifty has shed over 350-points in last two sessions, we can expect a kind of technical pullback which will find resistance at higher levels. We recommend avoiding excessive exposure and look for stock-specific performances in the markets.

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