Trade setup: Nifty is structurally weak, but may see a technical pullback

In yet another disappointing session on Thursday, NSE Nifty breached critical levels, but after staging a mild recovery towards the end, closed with a loss of 135.85 points or 1.25 per cent at 10,705.

The headline index is technically weak and prone to further downsides. However, the index is trading near to its immediate short term supports, and it is mildly oversold on a few of the indicators. With Nifty PCR at 0.85, the index is expected to halt its decline and either pullback or consolidate in a range.

While a quiet start is expected on Friday, the 10,800 and 10,845 levels will act as resistance. Supports may come in lower at 10,680 and 10,635.


The Relative Strength Index (RSI) on the daily chart stood at 37.86 and marked a fresh 14-period low, which is bearish. The daily MACD showed a negative crossover and is now bearish, trading above its signal line.

The PPO has just turned negative. Apart from a big black body that emerged on the candles, no other notable formations were seen.

The pattern analysis of the daily charts showed a very text-book behaviour of Nifty while it halted its primary uptrend and began its intermediate trend. The index made a rounding-top formation, breached its neckline, and then slid further after oscillating back and forth below it while resisting to the broken neckline.

There market remains structurally weak. However, given the present charts, it will not be a surprise if Nifty shows some intention of stabilising and attempting a technical rebound.

The index has lost over 370 points in the past four sessions and such a steep downside is usually followed by a technical rebound, even if it is short-lived.

We recommend traders to avoid fresh shorts and continue to approach the markets with extreme caution.

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