Trade Setup: Dollar rebound to vex Nifty, action shifts to broader market

It was a day of correction for domestic equities on Thursday, as the market opened lower and ended on a negative note. Following overnight weakness in the US market and some technical rebound in US Dollar Index, Asian markets saw a negative start across the board, and India was no exception.

Headline index Nifty opened with a gap down and stayed in the negative territory throughout the day. While no recovery was seen during the day, Nifty did not breach its opening low, though it did test that level several times through the day. The benchmark finally ended the session with a net loss of 96.20 points, or 0.84 per cent.

Maximum Put Open Interest stood at strike price 11,300 for the day, and this prevented the index from settling below the 11,300 level. More importantly, Nifty faced strong resistance in the 11,430-11,500 zone, which was created by the gap-down opening of the market when it first began the decline. This zone, therefore, also acts as a major Double Top resistance for Nifty.


Volatility increased as India VIX rose 3.31 per cent to 20.6175.

On Friday, Nifty will face resistance at 11,350 and 11,385 levels while supports will come in at 11,250 and 11,185 levels.

The Relative Strength Index, or RSI, on the daily chart stood at 60.01. It has marked a fresh 14-period low, which is a bearish signal. The RSI remains neutral and does not show any divergence against price. The daily MACD remains bearish and trades below the signal line.

A Falling Window occurred on the candles. This resulted out of a gap-down start. Falling Windows often result in continuation of a bearish trend. However, this would need confirmation in the next trading session.

For the near term, the 11,430-11,500 zone will now become a temporary immediate top for the market. In the event of any resilient show, this zone will offer stiff resistance to Nifty going forward. Unless the gap in the 11,430-11,500 zone is filled in, any runway move from the current level is ruled out.

All in all, for the immediate short term, any significant technical rebound in the US dollar will imply a temporary trouble for the emerging markets in general. We recommend focusing more of the technically defensive stocks while navigating such a technical setup. From the sectoral point of view, the relative outperformance of midcaps is likely to continue. A cautious and stock-specific approach is advised for the day. As the RS Line against the broader Nifty500 Index suggests, Nifty is likely to continue to underperform the broader market.

(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)