Trade Setup: Defending 15,745 extremely crucial for Nifty; avoid aggressive shorts

In a volatile day of trade, the domestic equity market took a beating as the rising bond yield and strengthening US dollar continued to take a hit on the sentiments which led the market ending on a weak note.

Contrary to expectations, headline index Nifty had a much weaker than expected opening. After a near gap down start, the index made a steady decline as it stayed within a falling trajectory and consistently made lower lows during the day and slipped below 15,800 level at one point. However, the second half of the trade had some recovery coming in. Nifty came off over nearly 184 points from the low point of the day and ended with a net loss of 101.45 points or 0.67 per cent.

As we approach Tuesday’s trade, Nifty finds itself trapped in a defined range, though the range remains broad. The index saw the day’s low at 14,745; the 50-DMA stood at 14,699. This means that Nifty has bounced off from near its 50-DMA; this level is a very crucial support for the index on a closing basis. Volatility was absent as India VIX cooled off by 2.21 per cent to 21.2275. NIFTY PCR across all expiries stood at 0.93; though this was not oversold but quite healthy enough to make a case of some technical pullback.


Tuesday's session may see a stable start to the day. The levels of 15,000 and 15,085 may act as potential resistance levels, while support will come in at 14,900 and 14,810 levels.

The Relative Strength Index (RSI) on the daily chart was neutral at 50.92 and did not show any divergence against price. The daily MACD was bearish and remained below its Signal Line. A candle with a long lower shadow occurred on the charts; its emergence near the support of 50-DMA makes a case for a potential technical pullback.

The pattern analysis shows that the falling trend line drawn from the high point of 15,430 joining subsequent lower top still holds good; any technical pullback will find resistance to that short-term falling trend line. These levels, as of today, work out between 15,150 to 15,200 levels. On the lower side, the 50-DMA is one of the most important and crucial support for the immediate near term.

From a very short-term point of view, defending the previous session's low of 15,745 will be extremely crucial for the index not only for tomorrow but in the near term as well. As long as Nifty stays above its 50-DMA mark, it may stay under consolidation. Any violation of 50-DMA on a closing basis will invite incremental weakness. We recommend continuing to stay stock specific. Given the kind of shorts that still exist in the system, it is recommended to avoid aggressive shorts as long as Nifty stays above its 50-DMA. While continuing to protect profits at higher levels, a cautious outlook is advised for the day.

(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)