Trade setup: Nifty looks to stabilise; 10,538 level important

The domestic equity market had a thoroughly disappointing session on Monday, as after staying in the green very briefly in the morning; it slipped and remained in a falling trajectory throughout the day.

The benchmark Nifty ended the day losing 79.70 points, or 0.75 per cent. The broader market saw extremely dismal performance with the midcap and smallcap universe losing between 1.80 per cent and 2.46 per cent.

Poor sectoral performance was seen in Pharma, Auto, Media, Metal and Realty as they saw losses anywhere from 1.6% to 3.3%.

As we approach Tuesday’s session, the 10,538 level remains extremely important to watch outfor. This level is the 100-DMA of the Nifty. The index ended a notch below this level but still remains within its filter.

Tuesday is likely to see a quiet opening and we might see Nifty attempt to find some stability at current levels. In any case, for Nifty to stabilise, moving past 10,538 and sustaining above that will be of immense importance.

The 10538 and 10590 levels will act as immediate resistance area for Nifty. Supports will come in at 10490 and 10450 levels.

The Relative Strength Index – RSI on the daily chart stood at 41.8687 and it has marked a fresh 14-period low which is bearish. The RSI, however, does not show any divergence against the price. The daily MACD stays bearish even as it trades below its signal line. Apart from a black body that occurred, no significant formations were seen on the candles.

Pattern analysis shows Nifty, which had broken above the 10550-10600 zone, which represent multiple resistance area earlier, not only suffered a full throwback but dipped below the breakout level and in the process failing the breakout.

Overall, with the Nifty dipping below 10550-10600 zone, it now once again trades inside the earlier broad trading zone of 10310-10600. However, it currently flirts with its 100-DMA. It would be important to see if this level is held as support at close levels. Nifty now stays within the filter of this support and for it to stabilise a move above 10538 and sustenance above this level will be important.

We recommend keeping overall exposures light in the present scenario. Focus should be now to start reducing the shorts positions if any as the Nifty is nearly oversold on some of the oscillators. Quality purchases may be made in modest quantities. A cautious view is advised for the day.

Stocks to watch

On Monday, unwinding was seen on counters like HINDALCO, ITC, RNAVAL, PTC, NHPC, ADANI POWER, HDFC BANK, FEDERAL BANK, BAJAJ FINANCE, AXIS BANK, VOLTAS and NCC.

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