Trade Setup: Critical for Nifty to stay above 14,444; avoid shorts

On Friday, the domestic equity market suffered from one of the weakest overnight handovers. US bond yields spiked overnight with 10-year treasury yields testing the highs of 1.61 per cent momentarily. This led to strengthening of the US Dollar and led to a weak closing of equities in the US. Subsequently, it led to a very weak Asian opening.

After a gap down opening on Friday, headline index Nifty got even weaker and went on to almost test its 50-DMA which stood at 14,444. After having suffered one of the weakest closings over the recent months, the index ended the day with a deep cut of 568.20 points or 3.76 per cent.

The levels of 14610 and 14650 will act as resistance points; the supports will come in at 14480 and 14440 levels.

Monday’s session and the subsequent days would be very crucial from a technical perspective. The US market ended in the negative but NASDAQ showed some rebound. Coming back to domestic charts, it would be critically important for Nifty to stay and maintain close above its 50-DMA, which stood at 14,444. There are chances of a mild technical rebound, and with both GDP and GDV in real terms showing a positive number, sentiment might improve temporarily. The key thing would be to see if such a technical pullback, if any, sustains. With NIFTY PCR (all expiries) at 1.02, market, as such stood evenly placed.

The Relative Strength Index (RSI) on the daily chart stood neutral at 44.75; it marked a new 14-period low and did not show any divergence against price. The daily MACD was bearish and below its Signal Line. A falling window occurred on the charts. This usually results because of a gap down. Importantly, though usually such candles have a potentially bearish outcome, they should never be interpreted in isolation. This falling window, i.e., a black candle with a gap has occurred near the support area of 50-DMA and may not have any major bearish implication. It would be crucial to wait for some price confirmation on the charts.

There are mild possibilities of a technical pullback happening. However, regardless of this happening or not, Nifty has dragged its resistance points considerably lower. Over the coming days, the index will find resistance at 14,900-15,100 zone. For Monday, we recommend avoiding shorts even if the market sees some extended downsides. Instead, any move on either side should be used to make highly selective defensive purchases while keeping exposures at very modest levels.

(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)